SPEAKERS CONTENTS INSERTS
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OVERSIGHT HEARING ON MINING, THE AMERICAN ECONOMY AND NATIONAL SECURITYTHE ROLE OF PUBLIC LANDS IN MAINTAINING A NATIONAL ASSET
SUBCOMMITTEE ON ENERGY
AND MINERAL RESOURCES
COMMITTEE ON RESOURCES
HOUSE OF REPRESENTATIVES
ONE HUNDRED SIXTH CONGRESS
FEBRUARY 23, 1999, WASHINGTON, DC
Page 2 PREV PAGE TOP OF DOCSerial No. 10610
Printed for the use of the Committee on Resources
Available via the World Wide Web: http://www.access.gpo.gov/congress/house
Committee address: http://www.house.gov/resources
COMMITTEE ON RESOURCES
DON YOUNG, Alaska, Chairman
W.J. (BILLY) TAUZIN, Louisiana
JAMES V. HANSEN, Utah
JIM SAXTON, New Jersey
ELTON GALLEGLY, California
JOHN J. DUNCAN, Jr., Tennessee
JOEL HEFLEY, Colorado
JOHN T. DOOLITTLE, California
WAYNE T. GILCHREST, Maryland
KEN CALVERT, California
RICHARD W. POMBO, California
BARBARA CUBIN, Wyoming
HELEN CHENOWETH, Idaho
GEORGE P. RADANOVICH, California
Page 3 PREV PAGE TOP OF DOCWALTER B. JONES, Jr., North Carolina
WILLIAM M. (MAC) THORNBERRY, Texas
CHRIS CANNON, Utah
KEVIN BRADY, Texas
JOHN PETERSON, Pennsylvania
RICK HILL, Montana
BOB SCHAFFER, Colorado
JIM GIBBONS, Nevada
MARK E. SOUDER, Indiana
GREG WALDEN, Oregon
DON SHERWOOD, Pennsylvania
ROBIN HAYES, North Carolina
MIKE SIMPSON, Idaho
THOMAS G. TANCREDO, Colorado
GEORGE MILLER, California
NICK J. RAHALL II, West Virginia
BRUCE F. VENTO, Minnesota
DALE E. KILDEE, Michigan
PETER A. DeFAZIO, Oregon
ENI F.H. FALEOMAVAEGA, American Samoa
NEIL ABERCROMBIE, Hawaii
SOLOMON P. ORTIZ, Texas
OWEN B. PICKETT, Virginia
FRANK PALLONE, Jr., New Jersey
Page 4 PREV PAGE TOP OF DOCCALVIN M. DOOLEY, California
CARLOS A. ROMERO-BARCELÓ, Puerto Rico
ROBERT A. UNDERWOOD, Guam
PATRICK J. KENNEDY, Rhode Island
ADAM SMITH, Washington
WILLIAM D. DELAHUNT, Massachusetts
CHRIS JOHN, Louisiana
DONNA CHRISTIAN-CHRISTENSEN, Virgin Islands
RON KIND, Wisconsin
JAY INSLEE, Washington
GRACE F. NAPOLITANO, California
TOM UDALL, New Mexico
MARK UDALL, Colorado
JOSEPH CROWLEY, New York
LLOYD A. JONES, Chief of Staff
ELIZABETH MEGGINSON, Chief Counsel
CHRISTINE KENNEDY, Chief Clerk/Administrator
JOHN LAWRENCE, Democratic Staff Director
Subcommittee on Energy and Mineral Resources
BARBARA CUBIN, Wyoming, CHAIRMAN
W.J. (BILLY) TAUZIN, Louisiana
WILLIAM M. (MAC) THORNBERRY, Texas
CHRIS CANNON, Utah
Page 5 PREV PAGE TOP OF DOCKEVIN BRADY, Texas
BOB SCHAFFER, Colorado
JIM GIBBONS, Nevada
GREG WALDEN, Oregon
THOMAS G. TANCREDO, Colorado
ROBERT A. UNDERWOOD, Guam
NICK J. RAHALL II, West Virginia
ENI F.H. FALEOMAVAEGA, American Samoa
SOLOMON P. ORTIZ, Texas
CALVIN M. DOOLEY, California
PATRICK J. KENNEDY, Rhode Island
CHRIS JOHN, Louisiana
JAY INSLEE, Washington
BILL CONDIT, Professional Staff
MIKE HENRY, Professional Staff
DEBORAH LANZONE, Professional Staff
C O N T E N T S
Hearing held February 23, 1999
Statements of Members:
Page 6 PREV PAGE TOP OF DOCCubin, Hon. Barbara, a Representative in Congress from the State of Wyoming
Prepared statement of
Gibbons, Hon. Jim, a Representative in Congress from the State of Nevada
Rahall, Hon. Nick, a Representative in Congress from the State of West Virginia, prepared statement of
Underwood, Hon. Robert A., a Delegate in Congress from Guam
Prepared statement of
Statements of witnesses:
Brobst, Dr. Donald, Society of Economic Geologists
Prepared statement of
d'Esposito, Stephen, President, Mineral Policy Center
Prepared statement of
Lawson, Richard L., President, National Mining Association
Prepared statement of
Additional material submitted by
Additional material submitted by
McKinley, Michael J., Minerals Information Team, U.S. Geological Survey
Prepared statement of
Menzie, Dr. David W., Minerals Information Team, U.S. Geological Survey
Prepared statement of
Silver, Douglas, Balfour Holdings, Inc.
Prepared statement of
Additional material supplied:
Page 7 PREV PAGE TOP OF DOCDobra, John L., PhD., Director, Natural Resource Industry Institute, prepared statement of
Drozdoff, Leo M., Division of Environmental Protection, additional comments of
Evans, Michael K., President, Evans Group, material submitted by
Freeport-McMoRan Copper & Gold Inc., Washington, DC, Excerpt from 1998 Annual Report
King, W. Russell, Senior Vice President, Freeport-McMoRan Copper & Gold Inc., Washington, DC, prepared statement of
Lutley, John, President, The Gold Institute, material submitted by
Menzie, Dr. W. David, USGS, additional material submitted by
Milling-Stanley, George, World Gold Council, prepared statement of
Silver, Douglas, President, Balfour Holdings, Inc., material submitted by
OVERSIGHT HEARING ON MINING, THE AMERICAN ECONOMY AND NATIONAL SECURITYTHE ROLE OF PUBLIC LANDS IN MAINTAINING A NATIONAL ASSET
TUESDAY, FEBRUARY 23, 1999
House of Representatives,
Subcommittee on Energy and
Committee on Resources,
The Subcommittee met, pursuant to notice, at 2 p.m., in Room 1324, Longworth Office Building, Hon. Barbara Cubin [chairwoman of the Subcommittee] presiding.
STATEMENT OF HON. BARBARA CUBIN, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF WYOMING
Page 8 PREV PAGE TOP OF DOC Mrs. CUBIN. I want to welcome all of you to the Subcommittee hearing, and certainly, the new Ranking Member, Mr. Underwood. I am delighted to have you in this position, and I know we will have a lot of issues that we will be working on together.
We don't have votes until 5 p.m., and that is one of the reasons that we don't have more members here for the Subcommittee hearing. I think that this is important that we go ahead and get everything accomplished that we can for the record.
So, I do want to welcome the witnesses and members of the public to this inaugural hearing of the Subcommittee on Energy and Mineral Resources, of the 106th Congress. Before we get down to today's hearing, though, we do have some new members on the Subcommittee and I was going to introduce them, but since they are not here, I will just tell you about them. We have Bob Schaffer from the fourth district of Colorado, who was a member of the Resources Committee last year, but not of this Subcommittee; Congressman Greg Walden of the second district of Oregon, and Tom Tancredo, of the sixth district of Colorado. On the other side of the aisle, Mr. Underwood, the Delegate from Guam, as I already mentioned, is our Ranking Member for the 106th Congress. We have already discussed some things that we will be working on, and I don't know if you wanted to talk about your new members or if you want me to mention them. There they are.
We have Delegate Faleomavaega from American Samoa, and Congressman Patrick Kennedy from the first district of Rhode Island is a new member on the Subcommittee, and Congressman Jay Inslee from the first district of Washington. I am looking forward to working with all the new members.
Today's hearing will address concerns the Subcommittee has regarding the domestic hardrock mining industry and the role of public lands in providing an exploration base for the discovery of new metal mines to replace dwindling reserves. Last Congress, the Subcommittee dedicated a lot of time and energy to problems of the oil and gas producers on public lands, including the Outer Continental Shelf. There remains serious concerns and serious problems about the continuing viability of independent oil and gas producers in this country within the dismal price environment for both crude oil and natural gas over the last year and one-half or so. So there are things that we have yet to try to resolve to help gain access to public lands for purposes of exploration and production, but not just in oil and gas, in mining as well.
Page 9 PREV PAGE TOP OF DOC Metal prices are similarly depressed, perhaps not as much as in the petroleum industry, but they are depressed, as are many basic commodity prices, as a result of the slowdown in the global economy, for one thing. Yet, society continues to demand goods fabricated with metals and non-metallic minerals which we may import in the raw or finished state. Furthermore, the U.S. became the world's second largest producer of gold about a decade ago, a net exporter of the metal, which improves our balance-of-trade picture. So it is important that we help bolster that industry.
Just last week, the Commerce Department announced that the 1998 trade deficit was the largest ever in terms of actual dollars. It would have been even worse if we had not had the contribution of our domestic mining industry and the energy industries, too.
The Subcommittee will return to important business left unfinished last year with regard to valuing oil and gas for royalty purposes, and getting the Federal Government to aid, not hinder, companies seeking to develop all manner of energy and mineral deposits on the public lands and the OCS, and, of course, we want this to be done in an environmentally-sound fashion.
But coming from the West, coming from Wyoming, seeing the reclamation in Wyoming, where you cannot tell where the virgin land begins and the reclaimed land ends, I know that we can develop these resources in an environmentally-sound manner and still be good stewards to the land. Educating other members on this Committee is something that I very much want to do. When we took the leadership to the West, and we took some members from the eastern States to the West the summer before last, and they saw what we actually have in the West, how we have taken good care of the public lands, how we've been able to produce the resources, and save the environment at the same time, for our children, and our children's children, it made a big difference. So educating the members of the Subcommittee that maybe have never seen what good mining practices are, is something that we will be able to get to this year.
Page 10 PREV PAGE TOP OF DOC We have invited our witnesses today to give us an ''update'' on the role of public lands and hardrock mining in the American economy and mining's overall contribution to the national economy and to our military security.
Now that we are back from the President's Day recess, it seems fitting to note that Abraham Lincoln recognized the importance of a strong mining industry in a letter that he wrote to the Speaker of the House of Representatives on the afternoon of the date of his ''date with destiny''you might say, April 14, 1865. It was just before he went to Ford's Theater. President Lincoln wrote, and this is a quote: ''I have very large ideas of the mineral wealth of our Nation. I believe it practically inexhaustible. It abounds all over the western country, from the Rocky Mountains to the Pacific, and its development has scarcely commenced. Tell the miners from me, that I shall promote their interests to the utmost of my ability; because their prosperity is the prosperity of the Nation, and we shall prove in a very few years that we are, indeed, the treasury of the world.''
Now, for a third or fourth consecutive year, the Clinton Administration's budget request includes provisions which, if enacted, would only harm, not help, our domestic miners in the fight to stay competitive globally. Some of these are tax law changes which are not the Committee's charge, they are not under this jurisdiction, while others, such as royalties and reclamation fees, do fall within our jurisdiction. We are not looking at the details of such proposals today, however. We are taking the long view to determine the role of public land, and what role those lands should play in maintaining a key domestic industry.
This administration has made it a mission to change the manner in which hardrock minerals are disposed of on public lands. That is to radically reform the Mining Law of 1872 through regulation, by statute, and huge land withdrawals, is the way it appears to me. I think it is time to find out the consequences that such attitudes have had, and will have, on those who would invest their capital toward finding mineral deposits and then developing mines. My hope is that, as with the proposals to aid our domestic oil and gas producers, we can find bipartisan solutions to the problems of our public lands miners as well.
Page 11 PREV PAGE TOP OF DOC I now recognize our Ranking Member, Mr. Underwood, for any opening statement that he might have.
[The prepared statement of Mrs. Cubin follows:]
STATEMENT OF HON. BARBARA CUBIN, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF IDAHO
Today's hearing will address concerns the Subcommittee has regarding the domestic hardrock mining industry and the role of public lands in providing an exploration base for the discovery of new metal mines to replace dwindling reserves. Last Congress the Subcommittee dedicated much of its time to problems of our oil and gas producers on public lands, including the outer continental shelfand there remain serious concerns about the continuing viability of independent oil and gas operators in the dismal price environment for both crude oil and natural gas over the last year and one-half or so.
But, metal prices are similarly depressed (perhaps not as much as for the petroleum business) as are many basic commodity prices as a result of the slowdown of the global economy. Yet, society continues to demand goods fabricated with metals and non-metallic minerals which we may import in the raw or finished state. Furthermore, the U.S. became the world's second largest producer of gold about a decade ago, a net exporter of the metal, which improves our balance of trade picture. Just last week the Commerce Department announced that the 1998 trade deficit was the largest ever in terms of actual dollars. It would have been worse without the contribution of our domestic mining industryand energy industries, too.
The Subcommittee will return to important business left unfinished last year with regard to valuing oil and gas for royalty purposes, and getting the Federal Government to aid, not hinder, companies seeking to develop all manner of energy and mineral deposits on the public lands and the OCS, in an environmentally sound fashion. However, our witnesses today have been invited to ''update'' the Subcommittee on the role of public lands hardrock mining in the American economy, and mining's overall contribution to our national economy and military security.
Page 12 PREV PAGE TOP OF DOC Now that Congress is back from the President's Day recess it seems appropriate to note that Abraham Lincoln recognized the importance of a strong mining industry in a letter he wrote to the Speaker of the House of Representatives on the afternoon of his date with destiny, April 14, 1865 before going to Ford's Theater. President Lincoln wrote:
I have very large ideas of the mineral wealth of our Nation. I believe it practically inexhaustible. It abounds all over the western country, from the Rocky Mountains to the Pacific, and its development has scarcely commenced. Tell the miners from me, that I shall promote their interests to the utmost of my ability; because their prosperity is the prosperity of the Nation, and we shall prove in a very few years that we are indeed the treasury of the world.''
Now, for the third or fourth consecutive year the Clinton Administration's budget request includes provisions which if enacted could only harmnot helpour domestic miners in the fight to stay competitive globally. Some of these are tax law changes which are not this Committee's charge, while others, such as royalties and reclamation fees, do fall within our jurisdiction. We are not looking at the details of such proposals today, however. Rather we are taking the long view to determine the role public lands should play in maintaining a key domestic industry.
This Administration has made it a mission to change the manner in which hardrock minerals on public lands are disposed, i.e., to radically reform the 1872 Mining Law, by statute or by regulation changes and huge land withdrawals it would appear. Its time to find out the consequences such attitudes have had, and will have, upon those who would invest their capital toward finding mineral deposits and then developing mines. My hope is that as with the proposals to aid our domestic oil and gas producers we can find bipartisan solutions to the problems of our public lands miners.
Page 13 PREV PAGE TOP OF DOC I now recognize our Ranking Member, Mr. Underwood, for any opening statement he may have.
STATEMENT OF HON. ROBERT A. UNDERWOOD, A DELEGATE IN CONGRESS FROM GUAM
Mr. UNDERWOOD. Thank you, Madam Chairwoman. As the Representative of Guam, I am always pleased to hear about the Representatives from the West. I guess I am the furthest west. I am so far west, I may be a little bit east of Washington.
But we certainly appreciate the opportunity to receive a primer on the domestic hardrock mineral industry as our first Subcommittee meeting during the 106th Congress. Hardrock mineral production in this country occurs mainly in the West on what isor once waspublic land under the 1872 Mining Law. Many in the Congress, the media, and the public believe the 1872 law is antiquated and should be changed, while, overall, the mining industry opposes reform.
On February 10, 1999, USA Today editorialized, ''Sure, mining creates jobs and taxes, but the industry doesn't need Federal subsidies to do that. Indeed, given the industry's economic strength, the least it could do is pay a royalty on the resources it extracts. The gas and oil industry creates jobs and generates tax revenue, and invests in exploration and pays royalties and still makes a bundle. More to the point, the land-grabs authorized by the anachronistic 1872 Mining Law are so outlandish that jobs and taxes are beside the point: Taxpayers are getting snookered.''
Certainly, mining is a basic economic activity that supplies the strategic metals and minerals that are essential for agriculture, construction and manufacturing in the United States. The U.S. Geological Survey has estimated the value of U.S. raw nonfuel minerals production in 1998 at more than $40 billion, which was a slight decrease from 1997. The USGS said the decrease occurred ''mostly because of falling metal prices.'' They predict continued growth in the U.S. economy in 1999, but as a slower rate, providing a mild stimulus to the Nation's mineral-consuming industries. USGS also notes that, for the first time, the U.S. is now a net exporter of gold and silver. They believe that there is as much gold and silver and other hardrock minerals undiscovered as already extracted.
Page 14 PREV PAGE TOP OF DOC So, it is of concern to learn, as those new to this issue do, that the individuals and corporations producing hardrock minerals, located on and extracted from public lands, do not pay a production fee or royalty to the United States. This is unlike all other resources taken from public lands. For example, oil, gas, and coal industries operating on public lands pay a 12.5 percent royalty on gross income of the operation. In addition, Indian tribes charge a royalty on all types of mining, including hardrock mining. In 1990, the average royalty paid to Indian tribes by copper mines was 13 percent. In the private sector, gold royalties range from 5 to 18 percent.
A number of colleagues, including Representative George Miller and Nick Rahall, have advocated changing this situation for many years. Again this year, with the support of many Members of the House, they have introduced legislation to reform the archaic 1872 mining law. We respectfully request, on their behalf, that beyond this oversight hearing, the Chair schedule at least one legislative hearing this year to take testimony on these bills. I look forward to the testimony and to learning more about hardrock mining. Thank you.
[The prepared statement of Mr. Underwood follows:]
STATEMENT OF HON. ROBERT UNDERWOOD, A DELEGATE IN CONGRESS FROM GUAM
We appreciate the opportunity to receive a primer on the domestic hard rock mineral industry as our first Subcommittee meeting during the 106th Congress. Hard rock mineral production in this country occurs mainly in the West on what isor once waspublic land under the 1872 Mining Law. Many in the Congress, the media and the public believe the 1872 law is antiquated and should be changed. While overall, the mining industry opposes reform.
On February 10, 1999, USA Today editorialized, ''Sure, mining creates jobs and taxes. But the industry doesn't need Federal subsidies to do that. Indeed, given the industry's economic strength, the least it could do is pay a royalty on the resources it extracts. The gas and oil industry creates jobs and generates tax revenue, and invests in exploration and pays royalties and still makes a bundle. More to the point, the land-grabs authorized by the anachronistic 1872 Mining Law are so outlandish that jobs and taxes are beside the point: Taxpayers are getting snookered.''
Page 15 PREV PAGE TOP OF DOC Certainly, mining is a basic economic activity that supplies the strategic metals and minerals that are essential for agriculture, construction and manufacturing in the United States. The U.S. Geological Survey has estimated the value of U.S. raw nonfuel minerals production in 1998 at more than $40 billion, which was a slight decrease from 1997. The USGS said the decrease occurred ''mostly because of falling metal prices.' And, they predict continued growth in the U.S. economy in 1999, but at a slower rate, providing a mild stimulus to the nation's mineral consuming industries. USGS also notes that for the first time, the U.S. is now a net exporter of gold and silver. They believe that there is as much gold and silver, and other hard rock minerals undiscovered as already extracted.
So it is of concern to learn, as those new to this issue do, that the individuals and corporations producing hard rock minerals located on and extracted from public lands do not pay a production fee or royalty to the United States. This is unlike all other resources taken from public lands. For example, oil, gas, and coal industries operating on public lands pay a 12.5 percent royalty on gross income of the operation. In addition, Indian tribes charge a royalty on all types of mining, including hardrock mining. In 1990, the average royalty paid to Indian tribes by copper mines was 13 percent. In the private sector, gold royalties range from five to 18 percent.
A number of colleagues, including Rep. George Miller and Rep. Nick Rahall, have advocated changing this situation for many years. Again this year, with the support of many Members of the House, they have introduced legislation to reform the archaic 1872 Mining Law. We respectfully request, on their behalf, that beyond this oversight hearing, the Chair schedule at least one legislative hearing this year to take testimony on these bills.
Mrs. CUBIN. Thank you, Mr. Underwood. I have a couple of things I have to say. First of all, Bill told me that I said President Clinton made that statement about mining. Forgive me. I'm sure you can tell by the time it was over, it was President Lincoln who made that remark, and it's not funny.
Page 16 PREV PAGE TOP OF DOC Mr. UNDERWOOD. They are often confused.
Mrs. CUBIN. Not easily. Another thing that I'd like to say is that in the 104th Congress, we did pass mining law reformthe mining law of 1872and it did include a 5 percent net royalty payment. The President did veto thatPresident Clinton, not President Abraham Lincoln, but President Clinton vetoed that. So, I think it's only fair to say that there is bipartisan desire to reform the law, but not in a way that makes it more difficult for an already struggling industry to try to make a living for all of the miners.
And now, I would like to welcome Congressman Walden from Oregon to his first Subcommittee hearing, and Congressman Gibbons, who I say has lived the life of every boy's dream. The only thing he hasn't been is a firemanand he's going to do that next he sayshe's been a fighter pilot, a lawyer, a geologist, now a Congressman, and pretty soon, a fireman. So welcome.
Do either of you have any opening statements? Congressman Gibbons.
STATEMENT OF HON. JIM GIBBONS, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF NEVADA
Mr. GIBBONS. Thank you, Madam Chairman, and I want to take just a brief moment to applaud you on your leadership on the issue of holding these oversight hearings to hear about the state of mining in our country today. I believe that mining is one of those industries which we have to protect, not devastate. It's not an industry that we can control the commodity price of the market materials that they produce, and as a result, for those who believe that we should bury the industry with enormous burdens of new taxesthey do pay taxes already on a number of thingswe have to be very cautious on our approach to the industry, how it is looked after and preserved. After all, it is the only industry that allows us to have the quality of life that we have enjoyed through these many years.
Page 17 PREV PAGE TOP OF DOC Madam Chairman, we've seen an exodus of mining companies from my State. We've seen an exodus of mining jobshigh-paying, high-quality mining jobsthat provide men and women in the State of Nevada a wonderful livingallowing them not just to have a home, but to provide for their children; to provide for an education and a college education for their children.
I am one of those who has had the experience of being from the mining industry. I can tell you that there are a number of challenges before us. The mining industry has stepped to the plate many, many times in an effort to address these issues, and will continue to do so.
In my State, the mining industry is what we would like to call ''a good neighbor.'' It allows, not just for the development of the resource, but for communities of families to have a job and to live in a community in a better state of life than they ever had a chance or ever thought possible before.
I am interested to hear from our witnesses today, Madam Chairman, about the state of the mining industry in our Nation; and I look forward to your leadership in this role. Thank you very much.
Mrs. CUBIN. Thank you Mr. Gibbons.
I'd like to welcome Congressman Inslee to the hearing as well. Again, it is his first Subcommittee hearing and you're welcome to give any opening remarks, if you care to.
Mr. INSLEE. I will do some powerful listening, Madam Chair. Thank you.
Mrs. CUBIN. That is always good. I need to do it more often myself.
Well, now I will introduce our first panel of witnesses: General Richard L. Lawson, president of the National Mining Association; Mr. Michael J. McKinley, Minerals Information Team, U.S. Geological Survey; and Steve d'Esposito, president of the Mineral Policy Center. If you would come to the table, and we look forward to hearing your testimony.
Page 18 PREV PAGE TOP OF DOC Thank you very much. First, I would like the Committee to hear from General Lawson.
STATEMENT OF RICHARD L. LAWSON, PRESIDENT, NATIONAL MINING ASSOCIATION
Mr. LAWSON. Chairperson Cubin, members of the Committee, I am Richard L. Lawson, the president of the National Mining Association. Our members are the enterprises that deliver to public use most of the basic material resources required to uphold and strengthen America in daily lifethe miners and producers of coal, metals, and useful minerals; and the manufacturers of their equipment, and the suppliers of goods and services. Your oversight is timely and welcome.
Our Nation has the world's largest and most useful combination of metal ores, minerals, and energy. We rank first or second in the world production of about 20 essential resources, and high in many more. We hold significant shares of world reserves, and in world markets our presence ensures free competition, imparts stability, and deters attempted cartelization for either economic extortion or political coercion.
Many resources in the West are on the Federal land customarily called ''public land,'' a term that emerging practices belie. Public land alone contains more resources in variety and volume than major groupings of other nations; that is, the European Union and Japan. Our resources give us flexibility of national policynational economic policy and national security policy.
Yet the administration is in multiple ways, in multiple venues, locking these public resources away from public usedoing so by direct action and by indirect action. It is doing all things possible to discourage exploration and to prevent development. Many acts are unauthorized by current law or unjustified by the facts. The proximity of Federal holdings has been used to quash by intimidation private activity on private property as well.
Page 19 PREV PAGE TOP OF DOC This month, the administration put off-limits a big block of so-called ''public land'' in Montana. It is the most recent of almost half a dozen executive or regulatory confiscations.
Also this month, another major metals company closed its last U.S. exploration office. Exploration budgets are down 50 percent across the industry. No exploration now means no production in the future. Mining companies must have something to mine. Arbitrary delays and related risk hamper financing. They must go where they are allowed to produce minerals.
This pattern of action is forcing America's mining industry overseas to volatile regions and countries that have yet to evolve stable political and economic institutions; that are not necessarily devoted to free market economics and trade, and that may harbor or discover, economic and political ambitions.
These acts are also forcing U.S. dependence for essential resources on these places as well.
Some say they don't care if mining leaves the United States, that it doesn't matter in this new age. They think that a future can be secured without basic material resources. They think that if they produce words and ideas in this information age, then nothing else is necessary.
I know otherwisethat essential remains essential. I know that when anything threatens to destabilize the world economically or politically, America's young soldiers, sailors, and aircrews will be sent into harm's way to make it secure. I had to issue such orders as the Commander of U.S. Forces in Europe, and you know it, too.
I care that the United States remains a major mining Nation, and it has nothing to do with my present employment. I care because my pilot son in the Air Force will be one of those first called upon to secure the source of something essential. If we withdraw from world markets, then he, and many thousands of our sons and daughters who will go with him will be at risk.
Page 20 PREV PAGE TOP OF DOC U.S. mining is an element of national security. And the policy questions are these: Do we produce these resources, which we have at home, and keep our sons and daughters at home as well? Or do we send the activity, and our sons and daughters overseas?
To envision the importance of mining to America, do just four things whenever you ride the subway to and from the Capitol:
Never forget that the rails, the wheels, the cars, the electric power that turns the wheels, that moves the cars on the rails, and the control system that coordinates everythingall of it began in a mine;
Remember that every American in the year 1998 required almost 47,000 pounds of new mined material that year;
Remember that almost every material thing you use at work and at leisure began in a mine, or required something from a mine to make it, or grow it, or process it;
Remember that the Federal taxes due directly and indirectly to mining typically equal now more than 3 percent of all revenueall Federal revenuegreater than the sum of taxes on alcohol, tobacco, and other excise items put together.
And always look up at the walls around the Rayburn boarding platformlook whether coming or going. Recall that on those walls are representations of history's foremost exponents of wisdom and law; and that Moses, the lawgiver, is one of those that has a central place. When he spoke to the people of the Promised Land, the scriptures say he told of, and I quote: ''. . . a land whose stones are iron, and out of whose hills, thou may dig brass. A land wherein thou shalt not lack anything.''
America is such a land. Let us determine to keep it so. Thank you.
[The prepared statement of Mr. Lawson may be found at the end of the hearing.]
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Mrs. CUBIN. Thank you, General Lawson.
I'd also like to welcome Delegate Eni Faleomavaega to his first Subcommittee hearing as well.
Now, I'd like to recognize Mr. Michael J. McKinley, Minerals Information Team of the U.S. Geological Survey. I just have to say something first. My grandfather's brother was Oliver Otis Howard, who was one of the people who was instrumental in starting the USGS. There's a book written about him, and I'm going to have to get it, to find out for sure, because people have been arguing with me whether or not he was really one of the main guys, and I think he was.
Anyway, so, I'd like to recognize then, Mr. McKinley.
STATEMENT OF MICHAEL J. McKINLEY, MINERALS INFORMATION TEAM, U.S. GEOLOGICAL SURVEY
Mr. MCKINLEY. Thank you, Ma'am. Madam Chairman and members, I am Michael J. McKinley, a physical scientist with the U.S. Geological Survey, currently serving as the Chief of the Metals Section in the Minerals Information Team. I appreciate the opportunity to appear before you to discuss the role of metallic minerals in our national security and comment briefly on the availability of metallic minerals on public lands.
Metallic minerals are a key component of the supply of materials essential to our national security. These minerals are considered to be strategic and critical when the Nation must rely on importing them. Few countries produce them, and their use is critical to military and industrial applications. Despite the dramatic changes in military readiness strategies in present years, the uses of these metallic minerals are still critical and most sources of supply are unchanged.
Page 22 PREV PAGE TOP OF DOC For example, chromium is a metal that is used in stainless steel and in alloys in high performance aircraft. There is no substitute for chromium in either of these applications. However, 95 percent of the world's identified resources of chromium, which is extracted from chromite ore, are located in South Africa. The United States has no chromite ore reserves and only limited occurrences of chromite ore at all. As a Nation, we import 80 percent of the chromium we use; the remaining 20 percent is acquired through recycling. Although uses of chromium have changed over time, the supply of chromium has been a major concern since World War I.
For many years, the U.S. Government has maintained stockpiles of strategic and critical minerals. However, as the Department of Defense has changed its primary war planning scenarios; strategies for maintaining an adequate supply of minerals have also changed. There were more than 80 materials identified in the Strategic and Critical Minerals Stock Piling Act of 1939, half of which are metals. Congress has authorized the sale of many of these stockpiled materials in response to changing strategies.
Only three commodities have been designated by the Department of Defense to be stockpiled for future use: beryllium, a very light metal used in aircraft alloys; mica, an excellent insulator used in radar applications with extreme high voltage, and quartz crystals, used as a filter in electronics devices. Whether or not they are stockpiled, most of these materials are still strategic and critical, because they are still necessary for the equipment with which we defend ourselves in wartime and other emergencies. For example, of the more than 12 strategic and critical minerals used in modern fighter aircraft jet engines, only four are commercially recoverable via domestic sources.
At present, there are 141 active metal mines, not including placer mines, in 16 States. Also, current U.S. laws permit location of mining claims on Federal lands in 19 States.
Page 23 PREV PAGE TOP OF DOC The USGS has a long history of assessing the potential for undiscovered mineral resources. Modern systematic efforts to determine the potential for undiscovered resources, especially metallic mineral deposits, began in the early 1960's. In the early years of this effort, the products were qualitative, describing high, moderate, or low potential for occurrence of undiscovered mineral resources. More recently, probablistic quantitative assessments have been developed, resulting in reports that describe the probability of occurrence of identified quantities of specific mineral commodities.
Mineral resource assessments have expanded over time to address the needs of numerous Federal land and resource planning efforts. The USGS, in coordination with the Bureau of Land Management and the Forest Service, under a Memorandum of Agreement, is conducting mineral resource assessments on individual land units, managed by the BLM and the Forest Service. Also, USGS is just completing a nationwide assessment of potential for undiscovered occurrences of gold, silver, copper, lead, and zinc. This national assessment estimates that about as much of these metals remains to be discovered as has already been discovered.
Although many local-scale mineral resource assessments have been completed, or are in progress for BLM and the Forest Service, there is no national systematic assessment of the potential for metallic mineral resources on all Federal lands. Some of the factors that make such an estimate difficult include the dynamic nature of land status, with lands passing from public to private ownership, and vice versa; methodological difficulties that arise from the relatively small areas included in individual tracts of public land; the inadequacy of scientific data for making predictions in those small areas, and the inherent uncertainties in making probablistic assessments.
The public lands may contain undiscovered deposits of mineral commodities that could be used to ensure the national security. However, ultimately, geologic factors, rather than land ownership, are the most effective predictors of potential for undiscovered mineral resources. For some commodities, such as chromite or bauxite ore, there is very little likelihood of ever identifying commercially significant resources in the United States.
Page 24 PREV PAGE TOP OF DOC Thank you, Madam Chairman. I will be pleased to respond to any questions you may have.
[The prepared statement of Mr. McKinley may be found at the end of the hearing.]
Mrs. CUBIN. Thank you, Mr. McKinley.
Next, I would like to recognize Mr. Stephen d'Esposito, president of the Mineral Policy Center.
STATEMENT OF STEPHEN d'ESPOSITO, PRESIDENT, MINERAL POLICY CENTER
Mr. D'ESPOSITO. Thank you, Chairman Cubin. Members of the Subcommittee, good afternoon. I am the president of Mineral Policy Center. I come here on behalf of our members and citizens all across the country, concerned about the environmental, social, and economic impacts of mining.
Let me summarize some of the key economic facts related to mining as far as we see it. First, the United States is among the world's leading producers of many metals, including gold, copper, and silver. It has substantial domestic reserves.
Second, changes in mineral exploration and development trends have causes that are multiple and complex. They include ore grade metal prices, government's stability, access to land, and available infrastructure.
Third, while mineral development is flat or down in some parts of the U.S., this is not necessarily due to shortage of supply or environmental protection measures. Changes in metal prices are the most important factor.
Fourth, unstable and depressed mineral and commodity prices, as well as increased mechanization, are reducing employment in mining.
Page 25 PREV PAGE TOP OF DOC And, sixth, changes in the prices of metals will have vastly different impacts on each metal-producing country, region, and company. Some companies with low-cost operations, may benefit during this period. Some may pursue a strategy of buying other companies and projects rather than investing money in exploration.
We should also not consider that drops in metal prices, and decreases in metals exploration, are not inherently bad for the United States or bad for the economy. For example, more recycling of metals would be good news for the environment, good news for the recycling industry, and good news in terms of preserving public lands.
We do not believe that, when it comes to our public lands, the best economic option is extraction first. There is a strong and growing volume of evidence that the development of non-extractive industries is in our national interest, particularly on public lands.
Consider some of the following expert conclusions: Intact natural resources are increasingly coming to be seen as an economic asset. Counties with open space now rank among the fastest growing. It is no longer accepted as obvious, the widespread assumption that mining can be expected to lead to economic improvement for rural communities.
Today's public lands policies run contrary to good economics, environmental protection, and common sense. We have singled out mining companies operating on public lands for what amount to multi-million dollar corporate welfare payments. Hardrock mineral producers claim that paying for Federal minerals would force a significant portion of them out of business. It won't. They pay royalties on State and private lands and on other Federal lands.
Hardrock miners claim that they are somehow fundamentally different than other sectors of the industry. They are not, according to the U.S. Office of Technology Assessment. Hardrock mining interests argue they should not pay royalties on public lands because they already pay Federal taxes. This is a misleading argument. Most businesses pay taxes. Paying taxes is not an argument for getting free raw materials.
Page 26 PREV PAGE TOP OF DOC Inaction is also creating a sizable taxpayer and environmental dent in our public lands. At some points, this bill will come due from yesterday's, today's and tomorrow's abandoned mines. Our estimate is that the cleanup cost could be as much as $72 billion.
We should remember that cleaning up abandoned mines will create jobs. In our view, sound economics and sound economic policy dictates change. First, it is in our interest to take action that will stimulate other commercial and non-commercial uses of public lands.
Although mining will continue to be an important element of our economy, there are clearly economic, environmental, and social benefits derived from other industries and other uses of our public lands, some of which outweigh the benefits of mining. The time is now for Congress to change current U.S. policies that favor mining on public lands.
Second, a mining industry that is rewarded for its environmental performance, and penalized for its environmental mistakes, will be a healthier industry, both in the U.S. and around the world. It is in the interest of Congress to create incentives for better environmental performance in our public lands.
Third, more and more experts are concluding that our environmental economic health and our security will improve if we use Federal raw materials more wisely. We should use fewer resources, use them differently, generate less waste, recycle, and re-use more. Policies that benefit extraction should be turned on their head.
Fourth, there is no justification, economic or otherwise, for policies that provide public subsidies to mining companies, creating an incentive for inefficient mine operations on public lands.
Fifth, as a matter of good economics and environmental protection, and in order to build stronger local economies and create jobs, we should begin today to address the liability time-bomb that is ticking away at our public, State, and public lands. We should begin a national cleanup program for the hundreds of thousands of abandoned mines.
Page 27 PREV PAGE TOP OF DOC We believe good environmental policy also makes good economic policy. Profitable mining and environmental protection are compatible. We recommend the following: Permanently end public land giveaways to mining companies; impose a fair royalty for mining on public lands; create an abandoned mine cleanup program, and end the policy of giving mining companies first use of our public lands.
These steps make economic sense. They will lead to healthier community use and healthier ecosystems. Jobs will be created, and we believe will lead to a healthier mining industry.
I would like to close with a quote from the CEO of Placer Dome, John Willson. He said: ''We at Placer Dome have concluded that, if a mine cannot afford the full cost of the state-of-the-art systems, then it should not be developed. There is no tradeoff. No mine developer has the right to impose on an ecosystem damage from acid rock drainage, just for the sake of economic activity, returns to investors, jobs, and other benefits. The key message here is that there is no room for compromise in environmental protection.''
My prediction, that if Placer Dome lives by these rules, they will in fact become the world's gold leader, and remain so for a long time. Thank you.
[The prepared statement of Mr. d'Esposito may be found at the end of the hearing.]
Mrs. CUBIN. Thank you, Mr. d'Esposito. I will begin the questioning. As we have five minutes to question you. Our questions and answers have to be in five minutes, so we will both try to make them as brief as we can, I hope.
I want to ask, first of all, Mr. McKinley, am I mistaken, it was my understanding, or it is my understanding, that there were potential chromite resources in Montana, but that there are certain technological advances that need to be overcomesome metallurgical problems, and reduction in production costs. But, that is not necessarily a great impediment, if other costs, like access to the land, and so on, were available, too. Is that correct, or am I mistaken in that? Because I know that your testimony said the only chromite was in South Africa.
Page 28 PREV PAGE TOP OF DOC Mr. MCKINLEY. Right. What we're talking about for bauxite and chromite is that the resources are not economically recoverable in the United States, and the grades of chromite and bauxite ores in the United States are of such low quality that we can probably continue to import them economically for the foreseeable future rather than to mine them domestically. In the case of chromite, we are talking about the deposit in Montana, at the Stillwater Complex. We just don't have the facilities, in the United States, to mine that, and beneficiate it, and smelt it and refine it effectively, without a concerted program, which would probably take several years, according to our specialist.
Mrs. CUBIN. Right. Might be like foreign countries developing sodium bicarbonate synthetically as opposed to the cheap trona in southwestern Wyoming. General Lawson, did you have
Mr. LAWSON. We have been working with the Department of Energy for the past two years on an issue called ''Industry of the Future.'' And this particular issue is one of the areas that we have identified. What we are doing is laying out a roadmap of required technologies to enhance the safety, the environmental capability of recovery, along with the recovery of minerals from substandard ores, in an economic fashion.
Mrs. CUBIN. Thank you. Would any of you disagree with me when I say that mining creates wealth in the economy, and jobs in the service sectorand I want to clean up the abandoned minesthe $72 billion, I think that number is in question. But, those jobs do not create wealth, and in order to create wealth, we need to have production of our natural resources. Would anybody disagree with that? Economically?
Then, there was one thing that I wanted to point out, that the mining law provisions that were passed by the 104th Congress, that were vetoed by President Clinton, did provide for, as I said, a 5 percent net royalty, and that money was to be dedicated to abandoned mines reclamation. I would like your opinion, General Lawson, and Mr. d'Esposito, on the effect that that veto has had on the environment, and on the industry.
Page 29 PREV PAGE TOP OF DOC Mr. LAWSON. Well, the veto simply delayed responsible activity on the part of many. In the interim time, in order to be ready, the National Mining Association and the Western Governors have sat down and developed an extensive program on, first, the identification and the compilation of abandoned mines, of the appropriate technologies that are going to be necessary to accommodate that. We have identified and worked on three mines to date in the recovery process. We believe now, from these first stages of our efforts with the governors, that the numbers have been overstated, and perhaps, with new technologies, the fiscal requirements have as well. But, certainly, all of the things that could have been accomplished during the past two years with an effective reform of the 1872 law have been delayed.
Mr. D'ESPOSITO. Yes, a few points to the answer: The first is that our estimate of $72 billion, which is a range of 32 to 72, is an estimate, that hopefully will prove wrong. We think what is critical is that we start the cleanup process, most importantly, putting resources into that process. I think voluntary efforts are wonderful. I think the efforts of the National Mining Association and the Western Governors Association are steps in the right direction, but the bottom line is, there needs to be funding to make it happen.
I think that the issue in terms of the 104th Congress wasn't so much one of the mine cleanup, but what a fair royalty return was. I think that is where things fell apart, as far as I understand it. But, I do think that the sooner we get funded cleanups, the better.
Mrs. CUBIN. One last very quick question: What areall three of youwhat are your feelings about having the Federal Government establish the standards and levels for cleanup and then allowing the States to accomplish those goals in the most economically-efficient and in the least amount of time? Just down the line, if you all three would do that.
Mr. LAWSON. I think it is absolutely critical that the States and the local areas have the maximum authority to develop the processes, procedures, and practices, because all these are different.
Page 30 PREV PAGE TOP OF DOC Mr. MCKINLEY. Ma'am, I don't know that I am in a good position to say what I think about the policy of this country. I would have to defer to the Office of the Secretary or the EPA.
Mrs. CUBIN. I understand.
Mr. D'ESPOSITO. We believe that the standard should be set federally. Monies should be collected federally, deposited into a Federal fund for cleanup, and then the monies should be allocated to the States. So, in principle, I agree in what you are saying. Of course, as always, the devil is in the details. But, I think, in principle, that would work as a Federal program carried out State by State.
Mrs. CUBIN. Thank you very much, and now I would like to yield to our Ranking Member, Mr. Underwood.
Mr. UNDERWOOD. Thank you very much, Madam Chairwoman.
Mr. d'Esposito, going back to the 5 percent royalty that was raised in the 104th Congress, was that satisfactory to your organization? Was that something that was consistent with your thinking?
Mr. D'ESPOSITO. I believe that the royalty that is being discussed was what is called a ''5 percent net proceeds royalty.'' That means that not only does the process of developing the ore into a bar of gold get deducted before the royalty is applied, but many other costs as well, and our concern is that as you add up those costs, the royalty starts to disappear, No. 1. And, No. 2, it is really difficult to track all those calculations and deductions. So, that was our concern with what was called the ''5 percent net proceeds royalty.'' We have always pushed for a gross or what is called a ''net smelter,'' because it is easier to calculate, it is more transparent, and you can know what you are going to get.
Mr. UNDERWOOD. Do you have an estimate as to how much the 5 percent net royalty would have raised?
Page 31 PREV PAGE TOP OF DOC Mr. D'ESPOSITO. I don't off the top of my head, but I can very quickly get that number for you and compare the two. I just don't have it at my fingertips. It was a difference in hundreds of millions of dollars between the two types of calculation.
Mr. UNDERWOOD. I think CBO estimated it at $11 million.
Mr. D'ESPOSITO. For the 5 percent net proceeds.
Mr. UNDERWOOD. I am very interested in both the presentations made by Mr. Lawson and Mr. McKinley on the issue of strategic minerals, so that I understand its relationship to national security. Perhaps, Mr. Lawson, you can tell us, I understand the concept that certain minerals are important to national security. Is there any sense on your part that current mining policy of the United States threatens in any way our national security?
Mr. LAWSON. I think it is quite clear when you have 50 percent of the industry that no longer explores in the United States, and a major company such as Asarco shuts its final exploration doors in the United States, the mining industry will be moving offshore because of the varied problems that are associated with developing a mine in the United States. As that industry moves offshore, the strategic minerals are going to have to come from someplace else and that will, I assure you, directly influence military activities in the years to come. I spent six months a year for five years on your island and national security was involved. Some of the national security in that area had to do with the requirement of strategic minerals and energy.
Mr. FALEOMAVAEGA. Mr. McKinley, in your testimony, you stated that the Department of Defense has changed its policy over the years and has designated some elements or some minerals as not quite being necessary for strategic stockpiling. Is that correct? Are all these minerals necessary? I noticed that in General Lawson's testimony there were a number of minerals that were stated as important for national security. Would you care to comment on that Mr. McKinley?
Page 32 PREV PAGE TOP OF DOC Mr. MCKINLEY. Yes, sir. As I mentioned, in the 1939 Stock Piling Act, which has essentially remained the same for the type of materials that are in the stockpile, there are about 80 of these materials that were designated as strategic and critical. As of right now, the Department of Defense has said that we only need to stockpile three materials. It does not necessarily mean that the rest of the materials are not strategic and critical.
For example, manganese is listed as one of the materials in there. We have 100 percent import reliance on manganese. There is no substitute for manganese and we absolutely need it for steel. The same could be said for cobalt. We have almost 100 percent import reliance on cobalt. It comes from countries that have geopolitical problems. Cobalt is needed for superalloys and for high velocity armor piercing projectiles.
What I am trying to say is even though the Department of Defense has only designated three materials to be stockpiled, the other materials, for the most part, are still strategic and critical.
Mr. FALEOMAVAEGA. Thank you very much for that clarification.
General Lawson, in your testimony, you referred to the concept of so-called public lands. Perhaps you can explain to me what is the difference between real public land and so-called public land.
Mr. LAWSON. What I thought a real public land meant was that it is available for multiple use in the various ways that the original laws and descriptions of public lands were intended. In the past six months, we have lost almost 2 million acres to various executive orders which had nothing to do with any action on the part of the legislature, which didn't have any scientific justification that we were aware of, and which were withdrawn from total public use. These lands have been completely withdrawn from any use, not just mining: no timber, no grazing, no snowmobiling, no anything; and so I just suggest to all of you that we need to think: Are public lands really public anymore? Is there a move afoot to totally remove and fence up public lands and not make them available for any activity?
Page 33 PREV PAGE TOP OF DOC Mr. FALEOMAVAEGA. Thank you very much.
Mrs. CUBIN. Mr. Gibbons.
Mr. GIBBONS. Thank you very much, Madam Chairman.
Just briefly, General Lawson, could you give us a thumbnail sketch of the economic study that the mining association did on the contributions of mining to the United States.
Mr. LAWSON. Yes, let me just give you a summary of the activity. We had total, direct, and combined economic activity in the U.S. economy of $523 billion. We had direct and indirect Federal revenues of $56 billion. We had direct or indirect State and local revenue of $27 billion. So, it was a combined business income over that time frame, one year of $295 billion, which was derived from the mining industry during that year. This particular year happened to be 1995.
If I may, let me add one thing. There has been a lot of discussion here about greedy mining companies receiving corporate welfare. In the year 1997 and this comes from the World Almanac of this year, 1999, the mining industry's total profits from the primary metals industries were $5.6 billion. The communications industry had a profit of $31 billion, and the electronic equipment industry had a profit of $25 billion. One questions: how did we get to be called the rich greedy industry with that set of numbers?
Mr. GIBBONS. Thank you very much.
Mr. d'Esposito, I have read your testimony. In fact, as I read most of it, I thought it was deja vu 1950 because as you heard the General talk about the mining requirements of every individual in this country requiring 44 thousand pounds of new material mined every year, I am caught by your statement that all materials should be recycled and reprocessed. I think it is evident from my knowledge that mining in this country only has disturbed one quarter of 1 percent of the land in this nation. In fact, that is less land than is disturbed by paved parking lots in Safeway stores.
Page 34 PREV PAGE TOP OF DOC I want to turn to your testimony here and, of course, I want to talk about the ticking liability time bomb that you talk about here and you quoted or referenced Leo Drozdoff of the Nevada Bureau of Mining Reclamation. He says that at least 13 major mines in Nevada are currently in bankruptcy. Is that an accurate statement of Leo Drozdoff?
Mr. D'ESPOSITO. That statement was conveyed to me by somebody who spoke directly with
Mr. GIBBONS. Is it accurate because you are representing it as accurate here? That's my question.
Mr. D'ESPOSITO. The statement is accurate as it was conveyed at a meeting about three weeks ago.
Mr. GIBBONS. Well, my understanding is that these operations are not major, but that really doesn't matter but would you just tell us the hazards to the environment or public health and safety that bankruptcy per se causes?
Mr. D'ESPOSITO. Bankruptcy, if there is not adequate bonding and reclamation as we have seen in places like Zortman-Landusky, potentially places like Summitville mean that adequate cleanup is not done.
Mr.GIBBONS. Is there adequate bonding in the State of Nevada?
Mr. D'ESPOSITO. Is there adequate bonding in the State of Nevada?
Mr. GIBBONS. Yes.
Mr. D'ESPOSITO. Nevada has bonding regulations.
Mr. GIBBONS. Is it true that every one of those mines that you describe here is bonded under reclamation?
Mr. D'ESPOSITO. I would expect that's the case but the point of including them isn't to say each mine will in fact end up being a taxpayer problem or an environmental problem. The point is to say quite a few are in the situation.
Page 35 PREV PAGE TOP OF DOC Mr. GIBBONS. We are talking about Nevada because that is your statement to this Committee which theoretically is under oath and you are representing that these mines in the State of Nevada represent a ticking public liability time bomb and each one of these mines is covered by bonding in the State of Nevada. Now are you saying the State of Nevada has inadequate revenues to cover the bonding of these mines?
Mr. D'ESPOSITIO. I am saying that a ticking time bomb exists when you have things like Summitville, followed by Zortman-Landvsky, followed by other mines on public lands that don't have adequate bonding.
Mr. GIBBONS. Well, $67 million for Zortman-Landvsky is not inadequate bonding. Is it not?
Mr. D'ESPOSITO. State regulators in Montana have said that the bonds may be short as much as $8 million. We estimate it could be higher. Time will tell. That is a significant amount of money to taxpayers in Montana.
Mr. GIBBONS. Madam Chairman, my time is about up and I will yield back to you for later questioning
Mrs. CUBIN. Thank you, Mr. Gibbons.
I want to make a point before I yield to Mr. Faleomavaega. I brought up earlier the issue of mining, creating, and developing the resources actually creating wealth. I think the point that I failed to make was that we can't protect the environment if we don't adequately develop and we don't have wealth. So, I think the two things have to go hand in hand. The other thing we talked about is the 5 percent net proceeds and the $11 million that the CBO estimated would be generated by a 5 percent net proceeds in the bill that the President vetoed.
Nevada has done a very good job of calculating 5 percent net proceeds levy on mines for about a century, and the State collected $48 million in 1994 alone. So I think that is what happened to these figures, and I think projections can be questioned and I think somehow we have to all come to an agreement on how we are going to do this because I know we all want the same thing.
Page 36 PREV PAGE TOP OF DOC Mr. Faleomavaega.
Mr. FALEOMAVAEGA. Thank you Madam Chairman. Just a couple of questions.
To the members of the panel: Do we currently have an accurate assessment from the U.S. Geological Survey and from the mining industry in terms of the total value of the metals that we currently have in the United States? Not what is already been harvested or mined, but do we have an accurate assessment both from the U.S. Geological Survey and the mining industry of the dollar value of the mines or the metals that are currently in the United States?
Mr. LAWSON. The U.S. Geological Survey does have a pretty good handle on the value of how much was produced. Now you said you were not interested in that, but we do not have, I would say, a good handle on what has yet to be produced.
Mr. FALEOMAVAEGA. I believe there is a statement in your written testimony, General Lawson, you state that the value of the coal that is currently in the United States was more than all of the oil that Saudi Arabia, Iraq, and Kuwait have in their possession. Now how did we come about with that assessment?
Mr. LAWSON Well, that assessment is based upon coal that has already been researched out, found and explored. We know precisely what the reserves consist of in terms of both quantity and quality, and we know for a fact that they represent both an energy context and total value and that was just a comparison with oil and gas in the area, sir.
Mr. FALEOMAVAEGA. So, that is an accurate statement?
Mr. LAWSON. Yes, but as to the metals, precious metals or strategic metals, we have not made an accurate assessment. Except of those reserves that have been found and located to date.
Our real concern, and a concern that I think the Committee needs to come to grips with, is because of a various number of factors. More and more of our companies are having to give up their exploration in this country. The costs of exploration are not insignificant. The fact is they are part of the most expensive aspect of the mining process and for various reasons both in terms of cost and in terms of delays associated with the time between the finding of the mineral and the actual ability to begin to mine a mineral, companies are electing to go offshore.
Page 37 PREV PAGE TOP OF DOC Mr. FALEOMAVAEGA. Do you think that might be to our advantage in the long run? Let's extract the mineral contents of other countries before coming back to our own. Why don't we extract the others first before hitting up on our own resources?
Mr. LAWSON. I think from a security standpoint that has some significant problems to say nothing of the economic aspects of it. We have the greatest storehouse of minerals in the world and the opportunity to effectively use those is one of the things that has made our economy number one in the world. We have low cost basic resources to fuel this economy of ours; that is why it is demanding. 47 thousand pounds per person.
Mr. FALEOMAVAEGA. My time is running short. One of the reasons why we have not approved the United Nations Convention of the Law of the Sea was because of these strategic metals. As far as our policy is concerned, the treaty did not give enough to the mining industry if we are to harvest, for example, cobalt and manganese that is contained in these nodules that are found in seabed mines and seabeds of many of the island nations in the Pacific as well as the Atlantic.
Mr. LAWSON. Well, the Seabed Treaty itself has several problems but that is one of the problems that has not been effectively resolved between the nations who are negotiating that Treaty.
Mr. FALEOMAVAEGA. Do you think our policy is accurate that we should not sign into the United Nations Law of the Sea Convention?
Mr. LAWSON. At this time, I think for a whole series of reasons, we should not.
Mr. FALEOMAVAEGA. Very interesting.
One more question, Madam Chairman, if it is all right. I think it seems that the mining industry really has had a very bad reputation. Is it because of the media hype or is it because of the environmental concerns and the history, strip mining, causing a lot of pollution, and things of that sort? Is this an accurate statement of the history of the mining industry?
Page 38 PREV PAGE TOP OF DOC Mr. LAWSON. Well, I think its 50 years old the assessment that you made. I think we're making dramatic progress in several ways. I like to think that Mr. d'Esposito and his group do an enormous service to the country by being environmental activists, by making us all take a look carefully at everything we are doing. However, I would like to suggest that we the people who put the blood, sweat, and tears and basic resources into cleaning up the environment are the active environmentalists. We are actively engaged in environmentalism.
Mr. FALEOMAVAEGA. One of the biggest problems, sir, that we are having now is that we have a lot of our conglomerate big mining companies doing operations in foreign countries that do not necessarily have high standards as far as emissions and environmental requirements as we have in our own nation, and now some of these tribes I think from Latin America are coming to sue some of these mining companies for some of these environmental things they have caused in these third world countries. Is that a fair way to do business to go and extract the mines and minerals from these countries that have lower standards?
Mr. LAWSON. Sir, I would not accept any of the statements you have made. Wherever we go around the world, we take with us the same kind of laws that we have here in this country. We help those rulers of those countries impose those laws because we in the United States know how to comply with those laws. It's the one way that gives us an edge on mining in other countries around the world to differentiate us from mining companies who come from places that haven't had to create environmental renovation. I think we are doing it.
Mr. FALEOMAVAEGA. I submit to you, sir, that is not what is coming forth right now General Lawson. I would like to see the specific incident; because frankly I've been all around this world.
There is a U.S. mining company doing business right now in West Papua, New Guinea that has caused a lot of pollution and all they had to do was to conform to Indonesian environmental standards. It was not U.S. standards and there were some very serious questions raised on that as an example. I only cite that as an example, sir.
Page 39 PREV PAGE TOP OF DOC Mr. LAWSON. I would like to see that.
Mr. FALEOMAVAEGA. I will definitely show you because it made the first page of The Wall Street Journal and I'll share that you with you, surely.
Mrs. CUBIN. I'd like to thank our panel for their testimony and for their candid answers to our questions.
Now I'd like to introduce the second panel. Mr. Doug Silver of Balfour Holdings, Inc.; Dr. David W. Menzie, Minerals Information Team of the U.S. Geological Survey, and Dr. Donald Brobst, Society of Economic Geologists.
I would like to remind the witnesses that under our Committee rules, we would like you to limit your testimony to five minutes but your entire written testimony will be submitted into the record.
The Chair now recognizes Mr. Doug Silver.
STATEMENT OF DOUGLAS SILVER, BALFOUR HOLDINGS, INC.
Mr. SILVER. Thank you. My name is Doug Silver. I am a research scientist and owner of Balfour Holdings. We serve as a corporate planning organization for many of the mining companies around the world. I was asked to speak today about exploration issues as they relate to the U.S. mining industry and I'm just going to read my comments.
There has been a dramatic decline in exploration activity in the United States over the past five years for two principal reasons. The depressed metal prices are responsible for general worldwide contraction in exploration expenditures. For instance, U.S. companies have reduced their worldwide exploration by 40 to 50 percent just in the last year and based on where the metal prices are today, we see that as being further cut during the year. The inefficiencies of the United States Federal and State governments in issuing permits compounds the difficulties companies are experiencing when trying to operate in the United States. The United States is no longer considered competitive for mineral exploration despite its strong geological potential for mineral discoveries.
Page 40 PREV PAGE TOP OF DOC Interviews with many exploration companies for this testimony reflect the consensus of opinion that the Federal and most State governments are trying to phase out the mining industry by catering to the whims of small groups such as the Mineral Policy Center whose deft manipulation of the legal system allow them to indefinitely delay the permitting process by financially breaking the companies. The single largest concern is the regulatory bodies directly or indirectly mismanaging the permitting process. The delays and substantial cost overruns, which are now commonplace, create undue financial hardship on mining companies and extort their legal rights. Companies cannot operate in such a hostile climate so they are taking their capital, ideas and U.S. environmental practices to other pro-mining countries. The possible exceptions to this opinion, of course, would be Nevada and Alaska where the State governments have been very proactive in both developing mining and in protecting their rights.
Only a handful of U.S. base and precious metal projects are currently undergoing the need for the required EIS or EA process. Mr. Faleomavaega, in response to your question, there are about 650 gold deposits in the United States and probably several dozen base metal deposits, most of which are either inactive due to low metal prices or the inability of companies to financially survive the permitting process. As Mr. Babbitt continues his successful circumvention on the legislative branch, some of these deposits will never be developed while others will never be discovered. The permitting process was never intended to be an adversarial process but that's what it has become and it really needs to return to its original roots as a cooperative effort between industry and government. A more streamlined system should be created which should study contents, establish time frames and define how costs are established and maintained.
I have heard countless horror stories of companies who hire the best consultants and work with the government to establish what it would cost in terms of time and money to complete the regulatory requirements and now the government has spent two to three times that amount and the process still has not been completed. Accountability is the biggest shortcoming of the process right now. We are finding that individuals within government bodies appear to be able to interject their personal agendas into the process. We see no oversight, we see no sense of urgency by the regulatory groups to do a certain number of studies. It is an endless process of draining the cash out of companies and preventing mining. Finally, the Record of Decision which is supposed to be the culmination of all the science and ideas brought together is now being deferred to the non-governmental groups who seem to be able to delay, appeal, and do whatever they want at the companies expenses. You are supposedly meeting to talk about proposed changes to the Mining Law of 1872. However, this debate, in my opinion, is becoming moot because of all these other problems. The mining industry would like to contribute to the U.S. economy but without a sincere effort to create a level playing field, companies can no longer justify spending money in this country.
Page 41 PREV PAGE TOP OF DOC There is an important ramification, simply the management problems of the regulatory process. We're not talking about discontinuing the EIS's. We're talking about having a system that is organized and works in a set time frame. Fifteen years ago you could permit a mine in two years. Now it is somewhere on the order of 10 years. A lot of the gold mines don't even have mine lives of 10 years and so you've created a huge problem for industry and it's one of the reasons that people are moving offshore. A return to higher metal prices will provide companies with financial breathing room but it will not do anything to alleviate the difficulties in operating in the United States.
The government should be very concerned about the mass exodus of U.S. mining companies because once a company spends tens or hundreds of millions of dollars on a foreign project it can neither move the project back to the United States nor return the funds it spent. Instead, these companies tend to make additional investments in the host countries. Therefore, shifting exploration activity back to the United States would become progressively more difficult as companies are established elsewhere. And, working on an international level, my clients are all sorts of companies, the United States is basically joining the ranks of certain persona non grata in the exploration world and it is terribly unfortunate that the legal rights of the miners are no longer honored. Thank you.
[The prepared statement of Mr. Silver may be found at the end of the hearing.]
Mrs. CUBIN. Thank you, Mr. Silver.
STATEMENT OF DR. DAVID W. MENZIE, MINERALS INFORMATION TEAM, U.S. GEOLOGICAL SURVEY
Dr. MENZIE. Madam Chairman and members, thank you for the opportunity to speak with you today. My name is David Menzie. I am a geologist with the U.S. Geological Survey. I currently serve as the Chief of the International Mineral Section of the Mineral Information Team. In this testimony I will discuss changes in the import and export of metallic mineral resources from 1975 to present.
Page 42 PREV PAGE TOP OF DOC The United States plays many roles in global mineral markets for metallic mineral commodities. USGS has analyzed the consumption production, imports and exports over the last two decades for 49 commodities to describe changes in imports and exports of metallic minerals. Seven different types of changes were identified and all commodities were grouped into one of these seven types. The major factors that influenced these changes are better understanding of geology, technological change, economics, and political factors.
I refer you to Table 1 of my statement, which presents the percent net import reliance for metallic mineral commodities during the period of 1975 to the present and estimates U.S. consumption for each of the commodities in 1998.
Percent net import reliance is calculated by determining the percent of apparent consumption that is met by net imports. It is one of the ways of examining a country's vulnerability to supply disruptions. Time does not permit me to describe the changes in consumption, production imports and exports for each commodity. Instead, I will identify the seven groups of commodities that exhibit similar patterns of imports and exports. Details for the specific commodities are an attached item.
Group 1 commodities show continued net exports and these include beryllium, lithium, and molybdenum.
Group 2 commodities show changes from net imports to exports and these are gold and silver.
Group 3 commodities show decreased import reliance. These are cadmium, iron ore, and selenium.
Group 4 commodities show changes from net exports to imports. These include aluminum, copper, lead, magnesium metal, rare earths and titanium metal.
Group 5 show continued import reliance of less than 50 percent, iron and steel, mercury and vanadium fall into this class.
Page 43 PREV PAGE TOP OF DOC Group 6 commodities show increased levels of import reliance. Commodities in this group include antimony, silicon, tungsten, and zinc.
Group 7 commodities show continued import reliance of greater than 50 percent and include arsenic, bauxite, and alumina, bismuth, cesium, chromium, cobalt, niobium, manganese, nickel, platinum-group metals, rubidium, scandium, tantalum, thallium, thorium, tin and yttrium.
Another useful way of examining vulnerability of our economy to disruptions in the supply of mineral commodities is to examine where the imports of these commodities come from and what percentage of total imports come from those sources. Table 2 of my testimony shows the countries of origin and percent reliance on the two largest suppliers of each of the commodities. Some of the major changes in the geologic, technological, economic and political factors that have influenced the pattern shown in Table 1 include an increased understanding of the geographical factors that control the formation of mineral deposits. Gold is a useful example.
Since the late 1970's gold has been the primary commodity of interest for much of the exploration community. Because much of the research that formed the basis for the new understanding was conducted in the western United States, the United States has benefited more from these advances than have countries that have different geological conditions than the U.S.
Another major change has been the development of new technologies for exploration, mining and processing of ore. These include but are not limited to new mining technologies and the development of hydrometallurgical techniques for processing gold and copper which have been extremely important.
A technological area of growing importance is industrial ecology, the study of the flow of minerals and materials from the source to ultimate disposal. It encompasses recycling of materials and the reuse of product. It extends to the design of new products in ways that will reduce the need for raw materials or the cost of recycling. Recycling is already an important factor for materials such as aluminum and steel. Recycling, remanufacturing and redesign are likely to have an increasing impact on many materials in the future.
Page 44 PREV PAGE TOP OF DOC Global, political, and economic changes have an increasing effect on the patterns of mineral production, imports and exports. The adoption of democratic governments and market oriented economies throughout Southeast Asia and Latin America has greatly changed global patterns of investment in mineral projects. The result has been a major change in the willingness of companies to invest in exploration and production in these areas.
In addition, political reform and transition of the centrally planned economies of the former Soviet Union and Eastern Europe and China toward more market oriented economies were also affecting patterns of mineral production, imports and exports. The transition has resulted in decreased domestic consumption of mineral resources in those countries and increased exports of mineral commodities. Examples of this include aluminum and copper from Russia.
Several changes will affect the pattern of mineral production in the future. In the short term, the recession in Southeast Asia has caused decreases in mineral consumption that has depressed prices of many commodities. In the longer term, continued development of Southeast Asia and China could significantly increase the consumption of minerals over the next 10 to 20 years. Thank you very much.
Mrs. CUBIN. Mr. Faleomavaega.
Mr. FALEOMAVAEGA. Madam Chairman, I would like to ask unanimous consent that these remarks and the written statement by the gentlemen from West Virginia be made a part of the record.
Mrs. CUBIN. Without objection, so ordered.
[The prepared statement of Mr. Rahall follows:]
STATEMENT OF HON. NICK RAHALL, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF WEST VIRGINIA
Many years ago we had a chairman of this Subcommittee who held hearing after hearing on the importance of minerals to the national economy, and to the nation's security.
Page 45 PREV PAGE TOP OF DOC Some of you may remember Jim Santini and his love affair with strategic and critical mineral issues.
So it was from that time, during my early years in the Congress, that I began to learn about the subject matter of today's hearing, not just from Jim, but also from our late, great former chairman Mo Udall.
After a time, when I was chairman, it is an established fact that this Subcommittee again held countless hearings on hardrock mining issues, and not just in Washington, DC, but in several locations in the West as well.
With this background, I have no doubt that hardrock mining is an appropriate use of lands in the public domain.
I have never questioned the concept of multiple use of those Federal lands not reserved or withdrawn for specific purposes.
But what I have questioned is the appropriateness of a regime in which hardrock mining is conducted on public domain lands with virtually no return to the American public for the use of those lands.
This practice simply defies logic, especially as we approach the new millennium.
No company, no private individual, would allow mining on lands they hold title to without requiring financial compensation. And I fail to see why the Federal Government should be the exception.
I have also questioned the appropriateness of a regime in which the mining and reclamation aspects of hardrock mining on Federal lands is largely regulated under a patchwork of state environmental laws and regulations.
Even where there are Federal laws specifically for this purpose, such as SMCRA for coal, problems arise as we have seen in southern West Virginia with mountaintop removal mining.
Page 46 PREV PAGE TOP OF DOC One does not have to imagine, then, what types of problems are occurring under a loosely woven quilt of state law and BLM policy.
When all is said and done, yes, hardrock mining is important. But so, to, is our responsibility to be good stewards of the public domain. And so, to, is our responsibility to those citizens who must contend with the environmental ramifications of these operations.
I hold no pretenses that H.R. 410, my mining law reform bill, will ever see the light of day in this Committee. Nor do I believe it is a perfect bill. But I do believe that resisting reform is bad business for the mining industry.
Mrs. CUBIN. I wanted to announce to the Committee that a vote-is going ona 1-minute vote on H.R. 171, then a 5-minute vote immediately following on H.R. 193. I think we really don't have time to give Dr. Brobst adequate time for his testimony before the vote so we will go vote and then we will return as quickly as we can after that and then we will proceed with questioning of the witnesses. I apologize for the delay.
Mrs. CUBIN. I may go ahead and call the Subcommittee back to order, and recognize Dr. Brobst for his testimony.
STATEMENT OF DR. DONALD BROBST, SOCIETY OF ECONOMIC GEOLOGISTS
Dr. BROBST. Good afternoon, Madam Chairman and members of the Subcommittee on Energy and Minerals. I am pleased to be here to speak to you on behalf of the Society of Economic Geologists, a 79-year-old society that now includes about 3,000 geologists who work in academia, government, and industry, but have no formal ties to any one of these parts.
Page 47 PREV PAGE TOP OF DOC We are greatly concerned about the future availability of the minerals and fuels that are the lifeblood of our civilization, the basis of our economy, and our personally comfortable lives. We look around this room and consider the origin of the materials. We either mine them or we grow them. Remember that it takes mineral fertilizers and soil conditioners, as well as fuels, to grow things.
Land issues are fundamental aspects of mineral exploration and mining. We must examine large areas of land to find new mineral and fossil fuel deposits. Land policy opens or closes land to exploration and mining. Land policythat is mining law. The Mining Act of 1872 and the Leasing Acts of 1920 and later recognized the need for access to public lands for exploration and mining. Since the enactment of the Wilderness Act in 1964, land policy seems to be traveling a new path toward tighter restriction on exploration and mining.
If closure to these activities is the wave of the future, we must ask, why is this so? Perhaps this is an early manifestation of anxiety about how the resources are used and how the planet is degrading. But we must come to the realization that through understanding and desire for change, these things evolve. The facts must be faced realistically. We need these resources to live on. Earth's resources are finite and aren't evenly distributed. A minable deposit of anything is a rare and beautiful thing.
Most of these rare and beautiful deposits will be neededI should say, more of them will be needed as the population grows in the 21st century. Compound growth is a real killer for resource consumption and population growth. Mineral deposits are sought and mined at great risk and high cost in time and money. We need accessible land to carry out this effort. Work on a promising prospect may take 10 to 20 years to bring into production, and whose life might last 10 to 20 years. Therefore, deposits that we hope to be mining in 2010 to 2020 must be identified very soon.
A nation that cannot provide its own minerals and fuels must buy them abroad, if it can. Problems may be created in foreign relations. Cartels may try to limit prices, production and distribution. Many a war has been fought over the access and possession of resources.
Page 48 PREV PAGE TOP OF DOC Being without these commodities leads to a degradation of the standard of living, and that may be followed by civil unrest. We need a balanced view of the need for these nonrenewable resources and a need for a safe, healthy environment.
Better technology for exploration and mining is developed constantly. This allows environmentally-safe operations and leads to the use of formerly uneconomic materials. These technical developments also extend the use of our finite resources, but generally require more energy to produce.
The development of new ideas and technologies suggest that multiple mineral assessments of land are certainly needed, as stipulated in the wilderness legislation. As designated assessor of these lands, the U.S. Geological Survey should be supported in the multiple assessments of those withdrawn lands, and the assessments should include drilling for information about the third dimension: depth.
Mineral assessments without subsurface information are much less valuable and reliable. By 1996, wilderness areas already included more than 100 million acres, in 11 States of the Far West and Alaska and mostly on the public lands under discussion. This region has a geologic history through which conditions were favorable for the formation of many known large mineral and fuel deposits, and probably many more undiscovered ones.
Would it not be a good idea to allow for future access to these lands? Would it not be wise to get a better idea of the mineral wealth on and under our Federal public lands before putting them all out of commercial reach? The Nation needs land accessible to mineral entry.
In the few minutes that I have, I have tried to highlight some major points that I made in the statement that I submitted to you. My written statement also contains a bibliography that includes references cited in the statement, and also lists some other works that focus on our mineral resource problem.
Page 49 PREV PAGE TOP OF DOC Thank you.
[The prepared statement of Mr. Brobst may be found at the end of the hearing.]
Mrs. CUBIN. I would like to thank the entire panel for their testimony. I will begin the questioning.
First, I would like to ask Dr. Menzie, and then followed by Dr. Brobst, if he wishes: One of the witnesses on the first panel testifiedand this is a quote from his testimony''Recycling should be thought of as a source of minerals.'' I would like to ask you both, what are the recycling rates for some of the metals that you discussed, and realistically, how much can the recycling rate for these metals be increased?
Dr. MENZIE. Madam Chairman, I don't have the recycling rates at my fingertips, but they generally are less than 50 percent for any given metal. It varies quite considerably, depending on the particular metal. But, in general, recycling has increased over time, and it is largely in companies' interests to recycle. They, therefore, do so. So the rates have increased over time, but they don't provide more thanwell, they are all less than 50 percent of the supply.
Mrs. CUBIN. Realistically, do you think that this recycling rate could be increased by any significant level in the short term?
Dr. MENZIE. That would be beyond my expertise. You would have to get into metallurgy and recovery. So I think you need to talk to someone else about that.
Mrs. CUBIN. Dr. Brobst, did you want to respond?
Dr. BROBST. Well, I might stick my neck out a little bit on that. I think that one of the interesting things about recycling is we can, undoubtedly, do more in a lot of areas. Some years ago, I visited the Reynolds aluminum facility down in Richmond, Virginia, and they were talking about the recycling of beverage cans, the aluminum ones. They were saying that they believed at that time that very close to 70 percent of the beverage cans were being recycled, which I think sounds phenomenally high. But you can recycle those cans, those aluminum cans, with about 5 percent of the energy that it takes to smelt virgin aluminum bauxite.
Page 50 PREV PAGE TOP OF DOC So there are certain things that could be done, such as a lot of recycling educationgetting people to do it. You can tell I am old enough to have been around during World War II, and I recall my mother recycling unused aluminum cans and that sort of thing. So after the war, we stopped all that, but it could really be started again.
Mrs. CUBIN. Dr. Menzie, I am wondering if we could trouble you to furnish the Committee with those recycling rates, if you wouldn't mind?
Dr. MENZIE. I would be glad to provide the recycling rates.
Mrs. CUBIN. Thank you very much.
[The information may be found at the end of the hearing.]
Mrs. CUBIN. This question is for Mr. Silver. I am concerned about the trends in domestic mineral exploration spending. I understand that U.S. exploration expenditures have been declining steadily since 1992, whereas worldwide exploration expenditures were increasing prior to the onset of the economic problems in Asia. Could you elaborate for me a little on the exploration trend since 1992?
Mr. SILVER. Whenever metal prices go up, you always get an increase in exploration expenditures because the companies can afford it. Exploration is considered a discretionary expenditure by most companies, or, in our language, many mining companies view exploration as a necessary evil. Lately, with metal prices being low, they are forgetting the word ''necessary.'' It is expensive to explore. It is very, very high risk. It can take a very long time to do, which is very hard for a commercial enterprise.
It has been decreasinggold prices, in particular, have been dropping. The other commodities are now dropping. So people are cutting way back. In the United States, though, they are having cutbacks because of metal prices, and since 1992, it has dropped off considerably. This year it is down substantially, with many companies cancelling, what we call, generative or grassroots. That is the exploration process where you discover new gold areas or new copper areas. You try new technologies, new research, to find brand-new deposit types and new areas. Most companies cannot afford to do that under today's metal prices. So, instead, they are only exploring, what we call, headframe exploration, which is exploration around the existing mines. When I asked the companies why they were focusing on that, their comment was, those lands are already permitted, and therefore, we can justify spending the money there.
Page 51 PREV PAGE TOP OF DOC Mrs. CUBIN. I think at some point we do have to be concerned whether sufficient expenditures for exploration are being made to replace the mineral reserves and maintain our Nation's domestic mineral resource base. Otherwise, our domestic mining industry I think will slowly slip into oblivion.
Do you think that current exploration expenditures are adequate to replace domestic reserves at normal mining rates?
Mr. SILVER. Absolutely not. As you know, the United States has become the second largest gold producer in the world. They are mining about 10 million ounces of gold a year. The average gold deposit is measured on the order of several hundred thousand ounces. So you need multiple discoveries to replace any of the U.S. production. So not only do you have an accelerated depletion of the existing reserves, but you are not finding enough new deposits to replace the gold reserves being mined. We are already in a negative curve. If you look at exploration expenditures, you will see they have leveled out, and what the projections are for 1999 forward, they are definitely going to drop off, and so are the discoveries.
Mrs. CUBIN. I recognize that my time has run out. Mr. Tancredo, if you don't mind, since the dais isn't teaming with members to ask questions, I would like to ask one more question of Mr. Silver.
I understand that several years ago you compiled an analysis of the effect of royalties on mining operations. Could you summarize that for me? And would you mind submitting a copy of that for inclusion in the record?
Mr. SILVER. By all means.
[The information may be found at the end of the hearing.]
Mr. SILVER. I was asked last year by the Minerals Exploration Coalition to analyze the new proposed royalty schemes on U.S. mines. I was really fortunate in getting one of the mining companies to actually provide me with their actual financial data for their three U.S. gold mines, and then we modeled the different royalty provisions.
Page 52 PREV PAGE TOP OF DOC Mrs. CUBIN. What mines were those?
Mr. SILVER. It was Golden Sunlight, which is in Montanait is a gold mineCortez, which is in Nevada, and the third one waswhat is the third gold mine? There is a third one; it will come to me. Bald Mountain, Nevada.
Mrs. CUBIN. What State is that one in? If you can't remember, it is all right.
Mr. SILVER. I am drawing a blank. It was the three gold mines that Placer Dome has in the United States.
Mrs. CUBIN. Okay.
Mr. SILVER. We modeled these and tested them in different provisions. When we did this, because we looked at all the different governmental entities and their different fees they extract from mining operation, we lumped them together on a dollar-per-ounce basis. Because we mine ounces, we look at our cash costs on a per-ounce basis. We, basically, found that this 8 percent provision that was being proposed would, in fact, increase the governmental extraction fees by 50 percent, which we were amazed that that would be acceptable to any American, to have their taxes raised 50 percent, but that is the way it came out with computer modeling.
Mrs. CUBIN. Thank you very much.
Mr. Tancredo, do you have questions for the panel?
Mr. TANCREDO. Thank you, Madam Chairman. I do.
My attention was drawn to the same set of figures that Madam Chairman's references were made to just a minute ago, and only to the extent that I sometimes think that providing the Congress with this kind of information is dangerous. As you probably know, there are a lot of people here who would look at this decline and take it as a very positive statistic, and especially mineral exploration expenditures in the United States. There are people who would certainly want to see it decrease. I know they are in this Congress. You know that they exist. To them, as they look at this and say, ''Boy, isn't that great, how far we are going down,'' maybe pretty soon it will be zero, and we won't be disturbing the environment in the United States anymore.
Page 53 PREV PAGE TOP OF DOC At any rate, I was wondering, Mr. Silver, if you could alsoyou, obviously, feel strongly about the current open-ended EIS process. You believe it is detrimental. I certainly agree with you.
The question is: What do you envision as an alternative to it? Could the EPA, in your estimation, undertake something like, what sometimes has been referred to as, the ''rocket-docket'' processyou know, to expedite project approvals. Are we kind of running down a slippery slope there by handing anything over to them for that purpose?
Mr. SILVER. I wouldn't pretend for a minute to be a lawyer, even at Halloween.
When we work with companies and they have a management problem, we can find solutions to the management problem and let the company move ahead with a more efficient structure that benefits the shareholders and the employees. I don't see why we can't do that with the U.S. Government.
Having said that, I realize that anybody can sue you any time they want, and they can appeal anything they want, but it strikes me very odd that we spend millions of dollars and several years conducting studies that are deemed important, and then at the end of it, anybody who wants to appeal or obfuscate the process is allowed to get away with it.
Mr. TANCREDO. Yes.
Mr. SILVER. I think that the government should set a certain number of studies that are agreed upon with expert consultants and with the company and the government. Those studies should have a budget. The budget should be adhered to, and when it is done, a record of decision should be put out, and that should become the final say. If other groups want to come in and appeal it after that, I think it should be the government's responsibility to pay for that, rather than financially bankrupting the companies.
Page 54 PREV PAGE TOP OF DOC One mining company that is extremely successful in discovering deposits in the United States no longer explores here. When I asked their president why, he said, ''Why would I want to discover another deposit in this country and go bankrupt getting a permit.''
In Bolivia, the permitting process is set up with timeframes. You are required to submit the information in a timely manner. They are required to review it and make decisions. If the government does not adhere to that timeframe, the permit is automatically issued.
This is the thing: We are taking U.S. environmental practices all over the world, because most of these companies are public companies. Their shareholders demand it. Their management and their employees demand it. But in other countries they help you through the process, and they try to make it efficient. They set deadlines, budgets, and they keep to it. We seem to have an open checkbook policy here, which is just destroying us. It is very frustrating.
Mr. TANCREDO. It certainly is frustrating. I am sure you recognize, and certainly I believe that the reason why we face this kind of a situation has little to do with the actual cost that either the government incurs or you incur in the process. I agree with you; I think there are ulteriorI think there are other motives for the people who are involved to force you and the companies that you are talking about, into the kind of process that you have described.
The last thing I wonder is, you also mentioned that Alaska and Nevada's policies were progressive, proactive. I guess I am wondering, do you know, what has the EPA done about that? Have they found out yet?
Mr. SILVER. I don't think it is just the EPA. I mean, I think it is the State governments as well and a number of other groups. The State of Alaska understands the value of natural resources to its economy. It is a very big part of Alaska. The same thing with Nevada. They appreciate the role minerals play in their economies, creating jobs, opportunities, and everything else. Therefore, I think they stand up a little bit more to the people with special agendas. They don't allow the process to just sort of go on infinitum. They keep people's feet to the fire, and that is what we expect out of our legislators. We have legal rights, too, and right now defending yourself in litigation is far more expensive than filing litigation. We wish there was a little bit of parity, so that we could get the process done correctly, rather than the way it is right now.
Page 55 PREV PAGE TOP OF DOC Mr. TANCREDO. As do I.
Thank you very much. I have no other questions.
Mrs. CUBIN. Well, I thank the panel for their valuable testimony, and Mr. Tancredo for his good questions.
If there is no other business before the Committee, we stand adjourned. Thank you very much.
[Whereupon, at 4:22 p.m., the Subcommittee was adjourned.]
[Additional material submitted for the record follows.]
STATEMENT OF MICHAEL J. MCKINLEY, PHYSICAL SCIENTIST, U.S. GEOLOGICAL SURVEY
Madam Chairman and Members:
I am Michael J. McKinley, a Physical Scientist with the U.S. Geological Survey (USGS), currently serving as the Chief of the Metals Section in the Minerals Information Team. I appreciate the opportunity to appear before you to discuss the role of metallic minerals in our national security and comment briefly on the availability of metallic minerals on public lands.
The Contribution of Metallic Minerals to National Security
Metallic minerals are a key component of the supply of materials essential to our national security. These minerals are considered to be strategic and critical when the Nation must rely on importing them, few countries produce them, and their use is critical to military and industrial applications. Despite the dramatic changes in military readiness strategies in present years, the uses of these metallic minerals are still critical and most sources of supply are unchanged.
Page 56 PREV PAGE TOP OF DOC For example, chromium is a metal that is used in stainless steel and in alloys in high performance aircraft. There is no substitute for chromium in either of these applications. However, 95 percent of the world's identified resources of chromium, which is extracted from chromite ore, are located in South Africa. The United States has no chromite ore reserves and only limited occurrences of chromite ore at all. As a nation, we import 80 percent of the chromium we use; the remaining 20 percent is acquired through recycling. Although uses of chromium have changed over time, the supply of chromium has been a major concern since World War I.
For many years, the U.S. Government has maintained stockpiles of strategic and critical minerals. However, as the Department of Defense (DOD) has changed its primary war planning scenarios, strategies for maintaining an adequate supply of minerals have also changed. Currently there are more than 80 materials identified in the Strategic and Critical Minerals Stock Piling Act of 1939, half of which are metals. Congress has authorized the sale of many of these stockpiled materials in response to changing strategies. Only three commodities have been designated by DOD to be stockpiled for future use: beryllium (a very light metal used in aircraft alloys), mica (an excellent insulator used in radar applications with extreme high voltage), and quartz crystals (used as a filter in electronics devices.) Whether or not they are stockpiled, all of these materials are still strategic and critical, because they are still necessary for the equipment with which we defend ourselves in wartime and other emergencies. For example, of the more than 12 strategic and critical minerals used in modem fighter aircraft jet engines, only 4 are commercially recoverable via domestic sources.
Availability of Metallic Minerals on Public Lands
At present, there are 141 active metal mines, not including placer mines, in 16 States. Commodities produced as a principal product or major byproduct are: antimony, beryllium, cadmium, copper, gold, iron ore, lead, molybdenum, palladium, platinum, rhenium, silver, and zinc. Current U.S. laws permit location of mining claims on Federal lands in 19 States (Alaska, Arizona, Arkansas, California, Colorado, Florida, Idaho, Louisiana, Mississippi, Montana, Nebraska, Nevada, New Mexico, North Dakota, Oregon, South Dakota, Utah, Washington, and Wyoming).
Page 57 PREV PAGE TOP OF DOC USGS has a long history of assessing the potential for undiscovered mineral resources. Modern systematic efforts to determine the potential for undiscovered resources, especially metallic mineral deposits, began in the early 1960's, in response to the Wilderness Act of 1964, which required mineral assessments of public lands prior to withdrawal as wilderness areas. In the early years of this effort, the products were qualitative, describing high, moderate, or low potential for occurrence of undiscovered mineral resources. More recently, probabilistic quantitative assessments have been developed, resulting in reports that describe the probability of occurrence of identified quantities of specific mineral commodities. The first of these assessments was published in 1976.
Mineral resource assessments have expanded over time to address the needs of numerous Federal land and resource planning efforts, including those of the Forest and Rangeland Renewable Resources Planning Act of 1976, which applies to National Forest lands; the Federal Land Policy and Management Act of 1976, which applies to BLM lands; and the Alaska National Interest Lands Conservation Act of 1980. The USGS, in coordination with the BLM and the Forest Service under a Memorandum of Agreement, is conducting mineral resource assessments on individual land units managed by BLM and the Forest Service, including BLM districts and resource areas and National Forests. Other assessments are conducted on Alaska National Interest Lands and lands designated for various types of withdrawal. Also, USGS is just completing a Nationwide assessment of potential for undiscovered occurrences of gold, silver, copper, lead, and zinc. This National Assessment estimates that about as much of these metals remains to be discovered as has already been discovered.
Although many local-scale mineral resource assessments have been completed or are in progress for BLM and Forest Service, there is no national systematic assessment of the potential for metallic mineral resources on all Federal lands. Some of the factors that make such an estimate difficult include the dynamic nature of land status, with lands passing from public to private ownership, and vice versa; methodological difficulties that arise from the relatively small areas included in individual tracts of public land and the inadequacy of scientific data for making predictions in those small areas; and the inherent uncertainties in making probabilistic assessments.
Page 58 PREV PAGE TOP OF DOC The public lands may contain undiscovered deposits of mineral commodities that could be used to ensuring the national security. However, ultimately geologic factors, rather than land ownership, are the most effective predictors of potential for undiscovered mineral resources. For some commodities, such as chromite or bauxite ore, there is very little likelihood of ever identifying significant resources in the United States.
Thank you, Madam Chairman. I will be pleased to respond to any questions you may have.
STATEMENT OF DR. DONALD A. BROBST FOR THE SOCIETY OF ECONOMIC GEOLOGISTS
Good afternoon, Chairman Cubin and members of the Subcommittee on Energy and Minerals. I am Dr. Donald A. Brobst and I am pleased to be here today representing the Society of Economic Geologists to speak on the future importance of Federal lands to the mineral and energy economy. Our society was founded in 1920 and has a membership of more than 3,000 professional geologists deeply involved with the study of and exploration for mineral deposits of all kinds. We are an organization that is independent of formal ties to government, industry and academia, although we may work individually in research or exploration for a wide variety of employers. The goal of our organization is to foster research and dissemination of geologic information for application to the continuing search for new mineral deposits. Because we deal constantly with the uneven distribution of mineral resources within the accessible portion of the earth's crust, the difficulties in locating them and bringing them to production, we economic geologists believe that we can offer some useful insights into resource problems that might not be as evident to others.
Minerals and fossil fuels are the life blood of our civilization and its economy. They are the foundation of society and our personally comfortable lives. Let's face it, no ancient emperor ever lived better than most of us do now in what we call the developed nations. These minerals are not just some abstract things that support the economy. Look around the room right here. There is stone, cement and steel for the building skeleton, copper in the pipes and wiring, chemicals of mineral origin in the paint. Don't forget the materials that made the tools and other machines that were used to build the building and the energy that made all of these steps possible. In the last few years, 1995 for example, domestic mine production yielded metallic minerals worth about $13 billion and noninetallic minerals worth about $25 billion. The raw minerals after further processing for commercial use had a value of $395 billion in a United States Gross Domestic Product (GPD) of $7 Trillion. The system of mineral supply that has allowed us to develop our high standard of living has worked well. How well will it do in the future is a question to ponder. How can we keep the mineral resource system functional?
Page 59 PREV PAGE TOP OF DOC As geologists and citizens, we are greatly concerned about the future availability of the minerals and fuels needed to keep the economy of our nation sufficiently productive to support our population in the life style to which it has become accustomed, a style to which the more rapidly rising population of the less-developed world aspires.
The minerals that we use are mined at the surface of the earth as well as to depths of thousands of feet beneath that surface. To find these deposits, we must examine large areas, often examining many prospects that do not turn out to be mineable. Thus, we are in need of land with which to work. Land issues, therefore, are fundamental aspects of mineral exploration and mining. Land policy opens or closes land to exploration for and production of minerals and fossils fuels. Land policy sets mining law. Since the early days of our nation mining law has made exploration and mining permissible on Federal land.
As you well know, a major mining law that applies to Federal land was established in 1872. The notion at the time was to assist individual prospectors in the development of the West. This meant settlement and the establishment of a viable economy in that region. The law allows the claiming of lands to develop and mine minerals after discovery in hard rocks or those associated with stream gravels, notably gold placer deposits. Once the discovery was certified and well assessed, the claimed land could be patented, i.e. removed from public land to private ownership.
The Mining Law of 1872 worked well for years but more recently has presented difficulties (Bailly, 1966). Mineral discovery must be certified on every claim at the time of staking. Currently discovery certification may require control of larger areas for commercial success when ''discovery'' may not be demonstrable on an individual claim, which encompasses about 20 acres. Discovery is generally now made by drilling and/or underground workings in areas larger than one claim. Other problems are seen in the approved legal status of claims for only two types of deposits, lodes and placers. There is no provision for staking claims on bedded or other types of deposits. The apex rule has been troublesome. Who really claimed the top of the deposit? For it is he who gets to mine downward. Many times the geology of the deposit does not offer a clear-cut case, which has opened many arguments. In recent years, the law has been the subject of considerable debate as efforts have been made to make it more applicable to present day mining problems and practice.
Page 60 PREV PAGE TOP OF DOC From 1920 onward, new laws allowing the leasing of Federal lands with payments of royalties for production of minerals and fossil fuels were passed by the Congress. These laws have allowed continued access to public lands and generated much additional domestic mineral and fossil fuel production.
It is clear now that U.S. mining law, despite its perceived flaws, has supported the idea that the nation needed to develop its mineral resources for the common good. The history of these mining laws and their problems have been well summarized in a readable style by E. N. Cameron (1986, p. 204-220).
Although mining law has been altered since 1920 by the leasing laws, land policy seems to be traveling in the opposite direction, on a path toward tight restrictions that preclude mining. More and more public land is being withdrawn from mineral entry, particularly under the Wilderness Act of 1964. Under this Act, economic tests were set to make decisions about the comparative value of various uses of the parcels of public land being considered for inclusion into the wilderness system. The law also provided that the U.S. Geological Survey (USGS) and the now defunct U.S. Bureau of Mines (USBM) should survey the mineral potential of these designated areas on a regular and recurring schedule consistent with the ideals of wilderness preservation. It would now seem that the plan of recurring assessment has been abandoned. As time goes on, new ideas and technology appear, making most areas deserving of another look. It is interesting to note that, although the Wilderness Act does not allow mining in these areas, it will allow the gathering of information about mineral and other resources, and even prospecting, as long as the preservation of the wilderness environment is respected. The Departments of the Interior and Agriculture were also requested to review every roadless area of 500 acres or more of contiguous areas within units of the national park system, wildlife refuges and national forests to make recommendations for inclusion of such areas into the wilderness system. The Federal Land Management Act of 1976 and the Alaskan National Interests Land Act of 1980 also authorized wilderness areas but did not include economic tests for the withdrawals.
Page 61 PREV PAGE TOP OF DOC The Office of Technical Assessment (1976) indicated that by 1974 the location of minerals under the Mining Law of 1872 had been prohibited on almost 42 percent of public domain, severely restricted on about 16 percent and moderately restricted on about 11.5 percent. The total amount of land withdrawn was 500 million acres. With respect to lands under the mineral leasing acts, such activity was prohibited on 36 percent of the public domain, severely restricted on about 23 percent, moderately restricted on about 6.5 percent. This involves 549 million acres. Doubtless, access must be even more restricted today. The affected lands are mostly in the 11 conterminous states of the Far West and Alaska. On a visually stunning map of the distribution and classification of ''Federal Land in the Fifty States,'' the National Geographic Society (1996) indicated that areas assigned to the wilderness system include 102 million acres in 360 areas administered by the Park Service (44 percent), the Forest Service (33 percent), the Fish and Wild Life Service (20 percent), and the Bureau of Land Management (5 percent).
By 1983 the USGS and USBM each assessed 45 million acres of Forest Service lands in, or considered for, the wilderness areas. It took 1,000 man-years of effort (Marsh et al, 1983). That effort did not include any drilling. It appears, therefore, that lands will be assessed without any information in the third dimensiondepth. Only Congress can release an area from the wilderness, a likely long procedure even if evidence of a good deposit is indicated. To demonstrate that might require information about rock and mineral characteristics at depth. Getting that information first as required is probably unlikely. We would hope that the now lone assessing agency, the USGS, will be financially supported in detailed recurring assessments that include drilling. Without information about rocks at depth, the resource assessments are much less valuable and reliable.
If the Wilderness Act with its closure to mining is the wave of the future in public land policy, we must ask why this is so. We must consider the effects of such actions on our national ability to maintain a high degree of mineral and fuel independence that will support firmly our economy, our security, and our comfortable life style through the coming years. This call for a reduction in mining on more Federal public land is perhaps an early manifestation of anxiety about how the human race is using natural resources, how it is degrading its planetary habitat, and what it will leave for future generations. We must all come to realize that understanding and changes evolve, but that certain facts must be faced realistically.
Page 62 PREV PAGE TOP OF DOC We need mineral resources to live. These mineral resources are finite and difficult to find. What we use we grow or mine. What we grow is renewable; and the minerals we mine are nonrenewable, although in some cases now recyclable to some degree. We geologists know that the mineral and fuel deposits we study and seek are rare and beautiful things. We need to communicate better that message, which I am trying to do today. To find a concentration of mineral or fuel material that we can produce at a profit under the economic conditions of the time is a real prize. Deposits are sought with great scientific and technologic effort at a high price. After discovery, they are developed with more great effort and more money. It is likely now that most of the easy to find deposits of most types that we now know about have been found in most areas of the world. Roscoe, (1971, p 134) noted that in 1951, one in 100 prospects in Canada that were examined during an exploration program lead to a mine development and by 1964 the ratio had been reduced to one in 1,000. This is certainly also true in the U.S. This means that we must continue to develop new and better ways to find more deposits in order to supply more people with their mineral needs. Finding and developing new deposits for production takes time. It may take 10 to 20 years to bring a promising show of minerals to successful production. This is a capital-intensive process. Many economic and legal changes may end a project and cause great losses before any product can be sold. It is a very exciting but risky business, this pursuit of mineral and fuel supplies to support the lives of the consumers (all of us!). We should keep the land access open because we might later want to return a once cancelled project.
We must realize that the resources in sight now will not be sufficient to raise the living standard of the growing world population to that of the so-called developed nations. Mineral production is constantly rising with expanding economies. This says to us quite simply that if we boldly suppose that we now have a 1000 year supply of a mineral commodity in sight at present rates of production and plan to increase that production at a growing rate of 2 percent in each successive year, our 1000 year supply will be gone in 152 years. Compound growth is a real killer for resource consumption and population growth. Is this not a strong argument for continuing research for new deposits of minerals and fossil fuels and for adopting land-use policies that can evolve as the social, political and technologic climate changes?
Page 63 PREV PAGE TOP OF DOC This line of reasoning implies exhaustion of commodity supplies. We can recognize geologic exhaustion of a mineral deposit when we can remove all of valuable ore material such as that found in a body with sharp walls between ore and adjacent non-mineralized rocks. Economic exhaustion is more common and occurs when some mineral material remains, but it is no longer mineable at a profit. Should some favorable changes occur in economics or technology, the deposit might again be profitably mined. This means that we need to permit continuing access to old mining areas in case they will be opened again as prices or conditions change.
As we turn to lower grade ore, mineable material with a lower percentage of the desired material than is currently available, we will be required to process more tons of rock to obtain the same amount of that material, which will in turn require the use of more fuel. When fuel becomes scarcer and more expensive, the costs of mineral production will rise and those costs will be passed on to consumers.
We should now look at some of these observations again and see what they mean to us now. Mining is done because we need minerals. We want them at the lowest price to sustain our lives at the highest levels possible. To do that for more people means that production must increase. The productive life of many deposits is only 10 to 20 years. If it takes 10 to 20 years to find and bring deposits to production, the deposits we need in production between 2010 and 2020 must be identified soon. That means that we must constantly be looking for new deposits. The need for deposits requires access to land for the search. Accelerated rates of production at known deposits are not a satisfactory long-term solution to supply problems.
A nation that cannot produce its own supplies of minerals must try to buy them abroad. Depending on where the supplies are located, special problems in foreign relations may be created. Cartels might seek to control production and distribution. History shows that many wars are fought over access to and possession of minerals and fossil fuel supplies (Youngquist, 1997). Even embarking on such wars requires the availability of mineral and energy commodities.
Page 64 PREV PAGE TOP OF DOC The only other option is to do without these minerals and fuel supplies. Doing without them will lead to the degradation of living standards at any level. That condition will not be acceptable to many people. Political and civil unrest may follow.
Everyone wants a clean healthy environment but everyone also wants to live comfortably and well. Accomplishing these two objectives will require the use of many resources, including those of minerals and energy, prudently and well in the future and at the least cost to the environment and the consumer. If there were no need or desire for these commodities, there would be no mineral and fuel industries. If there were no geology, there would be no environment.
Much success in the location of new supplies of mineral resources, developing new technology to produce them in an environmentally sound fashion, finding substitutes for scarce, expensive ones, and recycling as much as possible will be required in the days ahead. Not everything is recyclable, fertilizer commodities, for example. Recycling, however, cannot retrieve enough material to supply increased growth. All of these operations will require the availability of energy supplies at reasonable cost. New sources of energy will have to be found and developed. New kinds of energy resources will be called for. Research and development on these topics needs to be given high priority.
A closer look at oil suggests that by the middle of the 21st century world oil production will peak. Following the time of peak production, prices will rise and at some point reach a level high enough to signal economic, if not geologic exhaustion. This scenario of peaking production and subsequent price rise will apply also to any mineral commodity when the search for new deposits fails to turn up additional deposits.
We should certainly ask ourselves whether a fifty year supply of anything now is a great comfort to us. Even a 500 year supply at anticipated increased rates of production is not a great one considering the generations of people marching through coming geologic time. We must note, however, that people will have used up the readily available supplies of oil in about 200 years since Col. Drake drilled the first oil well at Titusville PA in 1859. The world's petroleum supply took millions of years to mature: none is younger than 2 million years. The mineral and fossil fuel deposits that we seek and use have formed at various places and in times that span millions of years. This does not mean that we should not use these resources, but that we should be aware of their origin, the magnitude of their abundance, and their distribution because we need them. We must be ready to adjust to changes in their availability before supply problems cause economic and societal stress. We need access to land to find the new deposits.
Page 65 PREV PAGE TOP OF DOC In conclusion, we are waking up to our environmental problems. Many people have not yet awakened to the resource problems. Both of these sets of problems must be examined with a balanced view. With the need for energy and minerals and the need for a safe and healthy environment, what balance we set will greatly affect what we do. Look again at that National Geographic map (1996). The 11 western States and Alaska have most of the public lands in question. This region of the U.S. has most of our large metal mines and some large nonmetallic deposits of relatively rare materials. This region has a geologic history through which conditions were very favorable for the formation of valuable deposits on and beneath the present surface. Would it not be a good idea to allow for future access? Would it not be wise to get a better idea of our mineral wealth on and under Federal public lands before putting it all out of commercial reach?
The bibliography that follows presents information on the publications cited in this text and some other works on mineral resources that might be of interest to readers of this paper.
Bailly, P., 1966, Mineral exploration and mine developing problems related to use and management of other resources and to U.S. public land laws, especially the Mining Law of 1872. Statement to the Public Land Law Conference, University of Idaho. Oct. 10, 1966, 43pp.
Brobst, D.A. in V.K. Smith, ed., 1979, Fundamental Concepts for the Analysis of Resource Availability, in Scarcity and Growth Reconsidered, The Johns Hopkins Press (for Resources for the Future) p 106-142.
Cameron, E.N., 1986, At the CrossroadsThe Mineral Problems of the United States: John Wiley and Sons, New York, 320 pp.
Eckes, A.E., 1979, The United States and the Global Struggle for Minerals: University of Texas Press, 353 pp.
Page 66 PREV PAGE TOP OF DOC Marsh, S.P., Kropschot, S.J. and Dickinson R.G., eds., 1984, Wilderness Mineral Potential Assessment of Mineral Resource Potential in U.S. Forest Service Lands Studied 1964-1984: U.S. Geological Survey Professional Paper 1300, 2 vol. 1183 pp.
National Geographic Society, 1996, Federal Lands in the Fifty-States. A map issued with the Oct. 1996 issue of the National Geographic Magazine.
Office of Technology Assessment Board of the U.S. Congress, 1976, Mineral Accessibility on Federal Land, U.S. Government Printing Office, Washington, DC
Park, C.F. Jr., 1975, EarthboundMinerals, Energy, and Man's Future: Freeman, Cooper and Co., San Francisco, CA., 279 pp.
Roscoe, W.E., 1971, Probability of an Exploration Discovery in Canada: Canadian Mining and Metallurgical Bulletin v. 64, no.707, pp 134-137
Youngquist, Walter, 1997, GeoDestinies: National Book Co., Portland, OR 499 pp.
The mining law of 1872 and the subsequent mineral leasing acts of 1920 and later recognized the need for access to public lands for mineral exploration and mining because the nation needed minerals and fossil fuels to support the economy, the national security, and the comfortable lifestyle of most of its citizens. With the advent of the Wilderness Act in 1964, lands began to be withdrawn from mineral entry. If the Wilderness Act with its closure to mining is the wave of the future in public land policy, we must ask why this is so. We must consider the effects of such actions on our national ability to maintain a high degree of mineral and fuel independence that will support firmly our economy, our security, and our comfortable lifestyle through the coming years. This call for a reduction in mining on more Federal public land is perhaps an early manifestation of anxiety about how the human race is using natural resources, how it is degrading its planetary habitat, and what it will leave for future generations. We must all come to realize that understanding and changes evolve, but that certain facts must be faced realistically. Mineral and fossil fuel resources are finite. We need mineral resources to live. These resources must be sought and mined at great cost in time and money. We need accessible land on which to carry out this work. Work on a promising prospect may take 10 to 20 years to bring into a production whose life might last 10 to 20 years. This means that deposits we hope to be mining in 2010 to 2020 must be identified soon. A nation that cannot produce its own minerals and fuels must try to buy them abroad. Problems in foreign relations may be created. Cartels may cause problems and many a war has been fought over access and possession of mineral and fuel resources. Doing without these commodities leads to degradation of living standards and that may be followed by civil unrest. We must have balance between the need for mineral resources and the need for a healthy environment. Look again at the National Geographic map. The 11 States of the Far West and Alaska have most of the public lands under discussion. This region has a geologic history through which conditions were favorable for the formation of many large deposits of metallic minerals, some of rare industrial minerals and probably more undiscovered deposits. Would it not be wise to get a better three-dimensional idea of our mineral wealth on Federal lands before putting them out of commercial reach?
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Subcommittee Oversight Hearing on ''Mining, the American Economy and National SecurityThe Role of Public Lands in Maintaining a National Asset'' February 23, 1999
The Subcommittee on Energy and Mineral Resources is holding this oversight hearing to gather factual information on the state of domestic mining, including trends in domestic mineral exploration, production and reserves. Mining is a basic economic activity which supplies the strategic metals and minerals that are essential for agriculture, construction and manufacturing. A recent study by the National Research Council concluded that one of the primary advantages that the United States possesses over its strongest industrial competitors, Japan and Western Europe, is its domestic resource base. The domestic mining industry provides about 50 percent of the metal used by U.S. manufacturing companies.
The United States is among the world's largest producers of many important metals and minerals, particularly copper, gold, lead, molybdenum, silver and zinc and still has substantial domestic reserves of these metals. Twelve western states containing more than 92 percent of U.S. public land account for nearly 75 percent of U.S. domestic metal production. Thus, much of the United States future mineral supplies will likely be found on public lands in the West.
Evidence is mounting that while global mineral exploration trends are strongly positive, U.S. mineral exploration has entered a protracted downward spiral. Continuation of this trend in domestic mineral exploration raises serious concerns that as known reserves are exhausted, significant declines in domestic mineral production will occur. A long term decline in U.S. domestic mineral production could result in the loss of thousands of high-paying, skilled jobs in the domestic mining, mineral processing and manufacturing industries and increase reliance on foreign mineral supplies, increasing a worrisome national trade deficit.
Page 68 PREV PAGE TOP OF DOC The Subcommittee will call witnesses from a national mining trade association, a consulting firm, the U.S. Geological Survey, a professional society and an environmental group to hear testimony on the following issues: (1) the domestic mining industry's contribution to U.S. economic strength and national security, (2) the current levels and trends in domestic mineral exploration efforts, (3) reliance on imported minerals, and (4) the role of mining on public lands in connection with the aforementioned issues.
For further information, please contact Bill Condit at x59297 or John Rishel at x60242.
ADDITIONAL MATERIAL SUBMITTED BY RICHARD L. LAWSON, PRESIDENT AND CHIEF EXECUTIVE OFFICER, NATIONAL MINING ASSOCIATION
Dear Chairman Cubin:
Thank you for the opportunity to testify on the Subcommittee oversight hearing on February 23, 1999 on Mining, the American Economy, and National Security. I believe it gave the mining industry an excellent chance to show why the U.S. needs the ability to access public lands for domestic extraction activities which are essential for our continuing economic strength while maintaining the sensitivity we all want for our collective environment.
During questioning of Mr. D'Esposito of the Mineral Policy Center by Rep. Gibbons of Nevada, several misleading comments were made about the adequacy of the bonding and reclamation at the Pegasus Gold Zortman Landusky complex in Montana. I'd like to correct those errors for the hearing record.
In 1996, Pegasus Gold Corporation and Zortman Mining Inc. (ZMI) reached an agreement with the Environmental Protection Agency, and the Montana Department of Environmental Quality, the Assiniboine and Gros Ventre Tribes of the Fort Belknap Indian Reservation and the Island Mountain Protectors, which settled outstanding water quality issues. Without ascribing liability, the agreement resolved all pending claims against Pegasus and ZMI for alleged water noncompliance. The agreement was the result of approximately three years of technical studies and negotiations. The agreement outlined that Pegasus and ZMI pay a cash civil penalty of $2 million divided equally between the Federal Government and the State of Montana. The companies also agreed to create a $1 million trust fund for the Fort Belknap Tribes to finance projects identified by the Fort Belknap Community Council. In addition, the companies agreed to finance three supplemental environmental projects ('SEP's) for $1.5 million. The SEP's included improvements to the aging water supply and distribution systems for the Hays and Lodgepole communities on the Fort Belknap Indian Reservation, an independent community health study of residents on the Reservation and a detailed inventory of aquatic resources on the southern portion of the Reservation.
Page 69 PREV PAGE TOP OF DOC In addition, ZMI had to post a compliance bond for the construction and operation of seepage capture systems and water treatment plants at both the Zortman and Landusky mine sites. The compliance bond basically serves as financial assurance for the state and Federal agencies that all corrective actions that were identified in the compliance plan will be completed. Furthermore, the bond had to include contingencies for what-if scenarios and had to be estimated as if the agencies were doing the work. It was also a requirement to post bond for treatment of water into perpetuity.
The compliance bond consists of three parts identified as the capital bond, the operating and maintenance bond, and the perpetuity bond. The capital bond covered all compliance construction work to be completed by year-end 1997, along with a 10 percent of capital contingency for unforseen problems with water capture and treatment systems. The total came to $7,194,260. Furthermore, there was an additional $2,905,260 bonded for five other what-ifs, bringing the total capital compliance bond to $10,099,894. All of this work was completed by ZMI within the allotted time frame and in accordance with all the terms of the consent decree. ZMI has asked the state for release of this bond.
The operating and maintenance bond consists of operating labor, maintenance labor, direct and indirect costs and G&A costs to operate and maintain all water capture and treatment facilities until the year 2016. This segment of the bond is for the next 20 years and used a 3 percent inflation rate in the calculation. This bond also includes water monitoring and analysis, along with additional what-if contingencies. The total bond requirement for O&M segment was $14,626,422.
The perpetuity of the long term bond is for replacement costs of the water treatment facilities every 30 years discounted into perpetuity, along with costs associated with the operation of the facility, monitoring, testing, etc. The total bond amount is $7,603,996. Hence, the total compliance bond that ZMI secured as part of the settlement totaled approximately $32 million. The bond was put into place before year-end 1996 and remains in place to this date.
Page 70 PREV PAGE TOP OF DOC On January 16, 1998, Pegasus Gold Inc. and certain of its subsidiaries filed voluntarily to reorganize under Chapter 11 of the Bankruptcy Code. Since that time, the Company's reorganization plan was confirmed of December 22, 1998 and confirmation of the plan occurred on February 5, 1999. During bankruptcy proceedings, all mine sites functioned in accordance with all state and Federal requirements and continue to do so.
Finally, the MDEQ has determined that the reclamation bond of $30 million (this is in addition to the $32 million that is in place for compliance issues) is inadequate, and has asked the bankruptcy court for an additional $8.5 million. However, it is the position of ZMI that all necessary reclamation work can be done for less than the current $30 million and a detailed estimate of the work was completed by ZMI earlier this year. Pegasus Gold, ZMI and the state have been in close contact regarding bond requirements, and negotiations have progressed very well. ZMI and Pegasus Gold have always had good working relations with the regulators and, contrary to what environmental advocacy would like to have others believe, ZMI will continue to maintain our positive working relationship with state and Federal agencies in the future.
In conclusion, Mr. D'Esposito's comments are nothing more than attempts to spread fear, while portraying the mining industry and in particular Zortman Mining, Inc, in a very bad light, when just the opposite is true. While having little or nor credibility regarding mining issues, as the staff of the Mineral Policy Center are not mining experts, and by not adequately explaining the facts of the Zortman/Landusky case, it seems MPC is trying to discredit an industry that has greatly supported the State of Montana both economically and environmentally. For over 18 years, ZMI supplied Phillips County with high paying mining jobs. Over the life of the mine, ZMI employed an average of approximately 210 people, with the highest employment rate reaching 300 people during 1994. ZMI employees consisted of people from all walks of life, including many members of the Fort Belknap Indian Reservation. All mining and associated disturbance has occurred within approximately 1,200 acres of private and BLM landthis acreage includes both Zortman and Landusky mine sites. There are not many ranches or farms of this size, that I am aware of, that can directly provide jobs and income of this magnitude anywhere in the country, not to mention the indirect jobs that were created by the tremendous amount of goods and services that are required to operate and maintain a mine site.
Page 71 PREV PAGE TOP OF DOC As I stated during the question and answer portion of our panel's presentation, in the vast majority of cases involving mining operations, the U.S. industry serves as ''active'' environmentalists creating new economic wealth for our nation, not environmental ''activists'' looking for problems on which they can litigate, but never arrive at a solution.
If you would like further clarification on this issue, please contact me and I'll put you in touch with Mr. John P. Jones who provided NMA with this information. Mr. Jones is currently the General Manager of the Reclamation Services Corporation currently under contract to MDEQ for work relating to operation and maintenance of water capture and treatment facilities at the Zortman and Landusky mine sites. You may also contact Ms. Jill Andrews, Executive Director of the Montana Mining Association.
ADDITIONAL MATERIAL SUBMITTED BY RICHARD L. LAWSON
Dear Delegate Faleomavaega:
During questioning on my testimony before the House Resources Subcommittee on Energy and Mineral Resources oversight hearing on Mining, the American Economy and National Security, you asked me to respond to a Wall Street Journal article which you said alleged U.S.-based Freeport-McMoRan Copper & Gold Inc. was causing pollution and only had to comply with Indonesian environmental standards, not U.S. environmental standards.
Although I have not yet received the article in question, I wanted to make sure I responded to you in a prompt manner. As promised, I checked the situation with Freeport and was surprised to learn you and your staff visited with company personnel and spoke with them several times on this issue. Perhaps Representative Miller's staff representative was unaware of the dialogue with Freeport when she gave you the question that you presented to me on the Irian Jaya, Indonesia situation. I believe your personal staff was checking on the House voting schedule during our exchange on this issue.
Page 72 PREV PAGE TOP OF DOC At any rate, I'm enclosing a copy of the six-page letter sent to you in August of last year from Russell King, Freeport-McMoRan's Senior Vice President here in Washington, DC. I believe his explanation of Freeport's environmental record in Indonesia on pages four and five of that letter is comprehensive. Further, the some 33 recommendations made by an independent environmental audit done by Dames & Moore which Freeport voluntarily commissioned on its tailing management program, are being fully implemented. I am told you also have copies of these audit reports. This letter also refers to the 42 separate environmental studies done by Freeport as part of its AMDAL (comprehensive environmental assessment) which was approved in 1997. Mr. King also advises me that Freeport is preparing to undergo its second independent environmental audit in the second half of this year, which will also be made public, and I am sure they will provide you copies of that when it becomes available. Finally, I've enclosed Freeport's 1998 Annual Report, which was just printed and includes a 12-page report on progress on social and environmental issues. I'm sure you'll find it of interest.
I also wish to address the clear implication in your comments before the Subcommittee that Freeport and other U.S. mining companies deliberately choose to operate in foreign countries where, in your view, environmental regulations are not as strict. This is a common misconception. With all due respect, mining companies put their mines where the minerals are located. Also, contrary to your suggestion, the environmental laws of Indonesia are very thorough and modern having been patterned after those laws of Canada which are in turn comparable to the United States laws. For your information, I have enclosed a copy of a speech by Lou Clinton, former President and Chief Executive Officer of Freeport McMoran Pacific, detailing the development of environmental regulations in Indonesia. I think you will find this interesting and know you will find it enlightening.
As I stated during the oversight hearing, I believe the companies making up the National Mining Association (NMA) set the world standard for all aspects of mining in production, health and safety, and in environmental remediation and reclamation. Please let me know if you would like to have me or a member of my staff visit with you further on this issue.
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STATEMENT OF W. RUSSELL KING, SENIOR VICE PRESIDENT, FREEPORT-MCMORAN COPPER & GOLD INC., WASHINGTON, DC
Dear Congressman Faleomavaega:
Thank you for taking time out of your busy schedule to visit with me and my staff about Freeport-McMoRan Copper & Gold Inc. (FCX) and the operations of our Indonesian affiliate, PT Freeport Indonesia (PT-FI), in Irian Jaya. I wanted you to know the many positive things we are doing.
Our actual operations in Irian Jaya, Indonesia's easternmost province, cover only a very small portion of the much larger area in which we are allowed to explore by our Contract of Work with the Government of Indonesia, In the area where we do operate, we strive to be a model of economic development that minimizes negative impacts, maximizes positive social impacts and respects the rights of local indigenous peoples.
As I mentioned to you, to assist the local people in Irian Jaya, we have, in conjunction with the Government of Indonesia, built hospitals, schools, churches, housing and community facilities, and have instituted a comprehensive series of health and educational programs and training and small business development initiatives to involve the Irianese in the economic development taking place around them. PT-FI has spent some $120 million on these programs since 1990. We have also sought to be sensitive to the need of Irian Jaya's unique peoples to preserve their cultures at the same time they are merging with modern development. For this reason, PT-FI has long supported the annual Asmat Art and Cultural Festival and this year sponsored the first Kamoro arts and cultural festival, which was highly successful. Catholic Bishop Alphonse Sowada has said Freeport's support has ''greatly enhanced'' the Asmat event, which he said ''. . . immensely bolsters both the feeling of pride and identity within them as being a people of value in the estimation outside their culture.''
Page 74 PREV PAGE TOP OF DOC Since we began operations in the area, the average life span of the local indigenous people has increased and the infant mortality rate has decreased principally due to the efforts of PT-FI and the Government. Company public health initiatives have resulted in an approximate 70 percent decrease in the incidence of malaria over the past six years and dramatic reductions of other communicable diseases in the area inside and adjacent to our Contract of Work. PT-FI has also assisted the Government and the International Committee of the Red Cross (ICRC) in providing food and medical assistance to Irianese in remote areas affected in recent months by food shortages caused by drought as well as by outbreaks of communicable diseases. Henry Fournier of the ICRC recently thanked Freeport for its help in distributing emergency food and said Freeport's Malaria Control and Public Health Program have ''. . . been the cornerstone in treating and preventing the unexpected malaria epidemic in the highlands.'' In an independent audit of PT-FI's social programs, a highly respected LABAT-Anderson consulting team reported that these programs have ''improved people's lives'' and ''go beyond the usual role and responsibilities of a private company.''
Over 20 years ago, we voluntarily entered into an agreement (the ''January Agreement'' of 1974) which recognized the traditional land rights of the indigenous Amungme tribe whose land was in the area of our operation. Under the Indonesian constitution, all mineral rights are reserved to the state. We believe the January Agreement was the first formal recognition of traditional land rights in Indonesia. Dr. Jacob Pattipi, then Governor of Irian Jaya, issued a report following a thorough review, concluding that we had met every legal and moral intent of the ''January Agreement.'' In addition, the Company has offered to negotiate with the Amungme and Kamoro people about ''additional voluntary recognition'' which takes into account both the greater value of the Company's activities in the area and the longer duration of those activities. The plan we have offered to the Amungme and Kamoro is based on cash generation from dividends and provides the two tribes with voting rights at PT-FI's shareholders meetings.
Page 75 PREV PAGE TOP OF DOC PT-FI also recently reached agreement with the Kamoro tribal communities of Nawaripi and Tipuka and the Government of Indonesia for the release of traditional rights to additional lands for developmental programs, including the tailings deposition area, power transmission lines, additional roads and the expansion of port and other facilities. In an agreement facilitated by the Sejati Foundation, a noted Indonesian non-governmental organization which works to protect the rights of indigenous people, PT-FI will build even more health clinics, educational facilities, housing, roads, bridges, village offices, churches and other community buildings and conduct economic feasibility studies, for the villages of Nawaripi Baru, Koperapoka, Nayaro, Tipuka and other areas.
We are aware that the social needs surrounding our operation in Irian Jaya are ever-increasing. In an area where only 400 indigenous people lived when we began operations, more than 60,000 people now reside, including thousands from other Irianese tribes not native to the area who have moved there because of the economic growth and prosperity. To help accommodate these needs, we agreed in April, 1996, to commit at least one percent of our gross revenues (not net profits as many mistakenly assert) for the next ten yearsan estimated $15 million a year currentlyin support of the Government of Indonesia's Integrated Timika Development Plan (ITD), a comprehensive social development plan based upon the input of indigenous leaders during a year-long series of meetings. The ITD was launched in July, 1996, and is supported by other private sector companies doing business in Irian Jaya in addition to PT-FI.
The LABAT-Anderson team supported the ITD concept in both its interim and final reports. However, the group cited problems in the implementation of ITD and made suggestions, for improvements. Moreover, local Irianese church leaders and some tribal leaders called for the suspension of ITD disbursements due to these problems and misunderstandings by the local people concerning the disbursement process. While PT-FI believed the ITD was a good plan when it was launched, the company agreed it was rushed into implementation and that serious flaws resulted. Accordingly, PT-FI agreed with the government, church and tribal leaders to suspend further disbursements from the fund in August 1997 other than for previously approved and essential programs with ongoing funding commitments, such as malaria control and public health, job training and scholarships for Irianese. PT-FI then entered a dialogue with local church and tribal leaders and government representatives on how best to restructure disbursements from the 1 percent fund to meet the LABAT-Anderson recommendations and local desires that the process be village-based, not tribal-based and that it be managed locally in Timika.
Page 76 PREV PAGE TOP OF DOC From these discussions has emerged the Freeport Fund for Irian Jaya Development (FFIJD), a vehicle for future disbursements from the 1 percent fund within the guidelines of the overall government ITD plan. Representatives of PT-FI, local churches, foundations representing the local tribesincluding LEMASA, a key foundation of the Amungme people which had opposed the original ITDare now meeting regularly to iron out details of the FFIJD funding mechanism in a manner acceptable to all. The funding of important new projects and programs to benefit the local people and their development are now under discussion.
In addition to the important commitments outlined above and at the request of local leaders, PT-FI agreed in 1996 to implement training and educational programs sufficient to quadruple the number of Irianese in its work force over the next ten years and to greatly increase the number of Irianese in management and supervisory positions. Progress toward meeting this commitment has been significant and PT-FI now employs thousands of Irianese. To support these initiatives, PT-FI has undertaken a comprehensive employee and pre-employment training program for the local people and has established a special section of the Human Resources Departmentthe Office of Irianese Education and Developmentto assure the proper hiring, training and evaluation of local employers and potential employees.
Besides supporting the FFIJD and the payment of additional voluntary recognition for the Amungme and Kamoro, PT-FI pays hundreds of millions of dollars annually to the Government of Indonesia for taxes, royalties, fees and dividends and these funds support government services that benefit all lndonesians including the inhabitants of Irian Jaya. Under PT-FI's 1991 Contract of Work, these direct benefits to Indonesia have totaled $1.1 billion. Moreover, during the same time period, 1992-1998, Indonesia has realized another $5.3 billion in indirect benefits in the form of wages and benefits paid to workers, purchases of goods and services, charitable contributions and reinvestments in operations. In all, 94 percent of PT-FI's total revenues have remained in and benefited Indonesia and in particular Irian Jaya.
Page 77 PREV PAGE TOP OF DOC Concerning environmental protection, we constantly try to minimize our impacts, and are committed to the continuous improvement of our environmental management systems We are in compliance with the environmental regulations of the Government of Indonesia. To help us monitor the environment closely surrounding our operations, we utilize the services of some of the world's best environmental scientists and have built a world-class, modern environmental laboratory.
Furthermore, as part of the Regional AMDAL (comprehensive environmental assessment, monitoring plan and management plans) we prepared for our current expansion, we commissioned 42 separate studies assessing the impacts of the operation as well as the state of the environment in the areafrom the nearby glaciers to the impact of our tailings on marine sediments in the Arafura Sea. These studies, including studies of social impacts, were performed by nearly 200 world class independent scientists who are acknowledged experts in their respective fields, and the major studies each underwent a ''peer review'' process conducted by panels of yet more independent experts to verify and validate the original findings. The results of these studies were presented in a series of academic and scientific workshops, and were included in the AMDAL documents for public scrutiny. Arguably, there is no place on the planet that has received as much intensive environmental and social scrutiny over the past two years as our project area. PT-FI's Regional AMDAL was submitted to BAPEDAL (the Environmental Assessment Agency) and the Regional AMDAL Commission. It was reviewed and revised and approved in December 1997 by the Minister of Environment. PT-FI's AMDAL was termed '. . . the most comprehensive (BAPEDAL) has ever seen,'' by AMDAL Commission Chairman Paul Coutrier, then-BAPEDAL Deputy Chairman for AMDAL and Technical Development.
However, in both these areassocial and environmentalwe recognize that we are developing in a complex arena and that we can always find ways to improve, For that reason, as mentioned before, PT-FI took the extraordinary steps of voluntarily submitting to thorough and independent social and environmental audits conducted under the auspices of BAPEDAL. The findings of the independent environmental audit and interim report of the social audit were made public in 1996 and the final social audit report was released in 1997. We know of no other company that has submitted itself to such intense, independent scrutiny, the results of which have been released to the general public.
Page 78 PREV PAGE TOP OF DOC The LABAT-Anderson social-cultural audit team consisted of internationally recognized sociologists and anthropologists, environmental analysts, specialists in development and agriculture, educators and health experts and individuals with a long history of working in Irian Jaya. This helped assure an independent, balanced and thorough approach. The LABAT-Anderson team recognized the complexity of social development issues in Irian Jaya and we benefited from the ''fresh look'' their report provided, which is one of the advantages of the independent audits. The report found that much progress has been made, but that much remains to be done. Mistakes have been made due to the complexity of Irian Jaya's social landscape and the unprecedented challenges faced there, Nevertheless, we remain completely committed to this process. The LABAT-Anderson team made a number of suggestions for reevaluation of program elements and we completely agree and are implementing their recommendations. At the same time, the report also says PT-FI's efforts ''show good intentions'' and that the company ''recognizes its social responsibility and that social development must keep pace with industrial and economic development.''
The environmental audit by Dames & Moore, conducted by a team headed by the Hon. Ros Kelly, former Australian Minister for the Environment, endorsed our tailings management program. Dames & Moore found that PT-FI's tailings management program is ''the most suitable option'' for the environment in which we operate and that the long-term risks associated with alternative tailings management options are ''unacceptable.'' Moreover, the report found that the tailings are non-toxic and that our mining operations do not pose any significant risk to Irian Jaya's biodiversity. Overall, the Dames & Moore team made 33 recommendations, all of which were accepted and are being implemented.
I left with you copies of both of these audit reports for your information. I realize I left you more information regarding these two areas than you anticipated, but I believe that to have a thorough understanding of our company and its motivations, you have to have at least an inkling of the great lengths to which we have gone and the dramatic steps we have been willing to undertake in order to insure that our operation is beneficial to our Irianese neighbors and our Indonesian hosts.
Page 79 PREV PAGE TOP OF DOC On the subject of human rights, PT-FI's numerous social programs outlined above have done much to help secure basic human rights for our Irianese neighbors and employees. These include opportunities for employment and an adequate standard of living, access to heaIth care and other social services, educational opportunities and cultural preservation. PT-FI is also working with the Government of Indonesia in a variety of ways to help establish the civilized rule of law in this remote part of the nation, including grassroots education on the basics of law and support for the Government as it establishes a civil and criminal court system. This helps assure Irianese of the human rights protections provided by access to a civil and criminal legal system.
There is a small separatist group operating in Irian Jaya known as the OPM (Organisasi Papua Merdeka) that, over the last several years, has engaged in a number of violent clashes with the armed forces of the Government of Indonesia and there have been allegations of human rights violations in connection with some of this activity. These have been investigated and the individuals in the military who were determined to be involved have been punished. The OPM has also been accused of engaging in human rights violations and terrorist acts, including the murder of one of our Irianese employees and the attempted murder of others and, in 1996, two protracted hostage-taking episodes which resulted in the deaths of four hostages. In one hostage situation, the victims were environmentalists and students affiliated with the World Wildlife Fund. FCX and PT-FI are on record strongly condemning all of these alleged human rights violations by either side in the conflict, as well as taking a strong position in defense of human rights in annual reports, press releases, correspondence and official interviews. FCX and PT-FI have also repeatedly and publicly stated their support of any legitimate investigation of alleged human rights violations. Furthermore, we have urged the ICRC (International Committee of the Red Cross) to establish a permanent presence in the Timika area. We are also working with UNDP and UNESCO to establish representation in the area.
Congressman, once again thanks for taking the time to meet with me and I appreciate your forbearance in reading this lengthy letter. However, I felt that you would appreciate having on record many of the things which we talked about. Please do not hesitate to call upon me if I may be of further assistance.
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A PROSPECTIVE ON ENVIRONMENTAL REGULATORY ISSUES IN INDONESIA
Louis A. Clinton
There is a myth that today most U.S. based multi-national companies seek to move their investments overseas to developing countries because those countries care less about the environment and/or do not propose to regulate in order to protect the environment. As a rule, I do not believe this is true for many developing countries, and certainly not for Indonesia. As I will illustrate later in my discussion, Indonesia has a major commitment to environmental conscious developmental policies and has the laws and regulations in place to implement this concern. I might also point out that Indonesia has a very active group of environmental NGO's which affect government policy both within and outside of the relevant Ministries.
Indonesia has developed a broad, comprehensive and fair environmental regulatory system within their country. Permit me to illustrate some of the specific steps they have taken to assure that their environmental laws and policies have kept pace with the increasing interest and priorities in this area. First, the Government of Indonesia (GOI) passed a ''omnibus'' environment law in 1982 (entitled Act of the Republic of Indonesia No. 4 of 1982Concerning Basic Provisions for the Management of the Living Environment). This landmark legislation provided for a comprehensive environmental assessment review to be completed for any major project prior to initiation of construction. This comprehensive legislation is quite comparable to the initial development of a similar type of legislation in the United States known as NEPA (National Environmental Protection Act) which began the requirements for Environmental Impact Statements in America for all major projects. Bear in mind that this landmark United States law was enacted in 1969, only 13 years prior to a similar law being passed in Indonesia. It was not until a year later that the U.S. EPA was established; and the specific framework for environmental standards only developed after enactment of U.S. legislation in the mid-1970's. Therefore, the GOI development of similar requirements is somewhat contemporaneous to that in the U.S.
Page 81 PREV PAGE TOP OF DOC The development of the omnibus environmental law in Indonesia, and subsequent regulatory programs to be discussed later in this talk, was not done in a vacuum. Rather it was done with the assistance of international groups with expertise in the area of environmental management. Specifically, a program was developed in 1983, called the Environmental Management Development in Indonesia (EMDI) Project, which was a cooperative program between the governments of Indonesia and Canada to assist Indonesia with development of environmental regulations. Thus, many of the environmental rules in Indonesia have been patterned after those in Canada which, in turn, are quite similar to U.S. environmental legislation and regulations.
In 1986, the GOI passed Government Regulation No. 29 Regarding Environmental Impact Assessments. This law added form and specificity to the 1982 law and set up the formal Environmental Impact Assessment program (called AMDAL). The cornerstone of this process called for the preparation of an environmental impact statement type document known as an Environment Impact Assessment Document (ANDAL). The ANDAL requires an applicant for any major industrial facility to provide significant technical, environment and social/economic data on all aspects of the project. It also required a comprehensive Environmental Management Plan (RKL) and Environmental Monitoring Plan (RPL) which specifically detailed all of the monitoring and environmental management activities to be conducted over the life of the project. The law also established an Environment Impact Assessment Commission to review all ANDALs before a project can begin. The Commission is composed of numerous federal government Ministry and Department heads, as well as Provincial Government representatives, experts from relevant fields and non-government organizations (NGO's). Therefore, there is broad based review of all major projects in Indonesia from an environmental perspective by various federal and regional government agencies, and the general public.
A special Ministry had been created for environmental policies known as the State Ministry of the Environment. It was headed until approximately four years ago by the internationally recognized environmental expert Bapak Emile Salim. In 1990, Indonesia expanded its environmental management capabilities by establishing a new agency within the State Ministry of the Environment known as BAPEDAL (Environmental Impact Management Agency). BAPEDAL's mission was formally established ''to execute the government functions to control environmental impacts using ecological principles and the utilization of natural resources such that negative impacts of development do not alter environmental functions.'' Since its establishment there has been significant growth and development of BAPEDAL. The agency now has a broad range of regulatory control. Regulations exist for water discharge limits, receiving stream water quality standards, air emission limits, ambient air quality standards, hazardous and toxic materials control, among many others.
Page 82 PREV PAGE TOP OF DOC In approximately 1992, BAPEDAL developed an Environmental Audit Program and Environmental Performance Rating Program to assess industries compliance with GOI environmental regulations. This program called for major industries in the country to have third party environmental audits conducted at their facilities and the reports to be submitted to the government containing the findings of that company's compliance with GOI regulations and world-wide management practices. The government developed a publicly announced environmental score card or environmental rating system based on a color code given to various levels of compliance performance. The program has been quite effective in bringing public attention to these matters and has resulted in significant conformance with environmental rules in the country by industries.
In addition to the environmental agency and environmental laws and regulations discussed above, the GOI also has environmental standards, controls and inspection rules within various Ministries and Departments of State. For example, the Department of Mines and Energy (DOME) has a special Bureau of Environment and Technology that closely regulates mining and energy projects. This includes routine inspections of operations, as well as requirements for operations to submit comprehensive quarterly information and data on environmental monitoring and management activities. Therefore, there is a double layer of environmental review of these industrial operations by the environmental agency (BAPEDAL) and the respective State Ministry under which that industry operates (DOME, Ministry of Industry, etc.).
Finally, the Government of Indonesia passed in 1992 a national land use/planning law that required Spatial Land Use Plans (RDTR) that emphasized regional and area planning and coordination for all environmental impactive developments. This has enabled the government to study, on a regional basis, environmental impacts so that the most efficient use of resources can be made with the least potential environmental impact.
So as we can see, the Government of Indonesia has for some time now had a very comprehensive environmental legislative and regulatory program that has established landmark ''omnibus'' type environmental requirements, such as environmental assessment studies prior to initiation of major projects, and; all of the various quality control standards that one can routinely find in developed nations around the world. Truly, the government has done its part in clearly delineating its concern for the environment.
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