SPEAKERS CONTENTS INSERTS
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58–947 l
1999
THE EFFECT OF FEDERAL MINING FEES AND PROPOSED FEDERAL ROYALTIES ON STATE AND LOCAL REVENUES AND THE MINING INDUSTRY
FIELD HEARING
before the
SUBCOMMITTEE ON ENERGY
AND MINERAL RESOURCES
of the
COMMITTEE ON RESOURCES
HOUSE OF REPRESENTATIVES
ONE HUNDRED SIXTH CONGRESS
FIRST SESSION
MAY 15, 1999, RENO, NEVADA
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Serial No. 106–36
Printed for the use of the Committee on Resources
Available via the World Wide Web: http://www.access.gpo.gov/congress/house
or
Committee address: http://www.house.gov/resources
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
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WALTER B. JONES, Jr., North Carolina
WILLIAM M. (MAC) THORNBERRY, Texas
CHRIS CANNON, Utah
KEVIN BRADY, Texas
JOHN PETERSON, Pennsylvania
RICK HILL, Montana
BOB SCHAFFER, Colorado
JIM GIBBONS, Nevada
MARK E. SOUDER, Indiana
GREG WALDEN, Oregon
DON SHERWOOD, Pennsylvania
ROBIN HAYES, North Carolina
MIKE SIMPSON, Idaho
THOMAS G. TANCREDO, Colorado
GEORGE MILLER, California
NICK J. RAHALL II, West Virginia
BRUCE F. VENTO, Minnesota
DALE E. KILDEE, Michigan
PETER A. DeFAZIO, Oregon
ENI F.H. FALEOMAVAEGA, American Samoa
NEIL ABERCROMBIE, Hawaii
SOLOMON P. ORTIZ, Texas
OWEN B. PICKETT, Virginia
FRANK PALLONE, Jr., New Jersey
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CALVIN 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
RUSH D. HUNT, New Jersey
LLOYD A. JONES, Chief of Staff
ELIZABETH MEGGINSON, Chief Counsel
CHRISTINE KENNEDY, Chief Clerk/Administrator
JOHN LAWRENCE, Democratic Staff Director
Subcommittee on Energy and Mineral Resources
BARBARA CUBIN, Wyoming, CHAIRMAN
W.J. (BILLY) TAUZIN, Louisiana
WILLIAM M. (MAC) THORNBERRY, Texas
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CHRIS CANNON, Utah
KEVIN BRADY, Texas
BOB SCHAFFER, Colorado
JIM GIBBONS, Nevada
GREG WALDEN, Oregon
THOMAS G. TANCREDO, Colorado
ROBERT A. UNDERWOOD, Guam
NICK J. RAHALL II, West Virginia
ENI F.H. FALEOMAVAEGA, American Samoa
SOLOMON P. ORTIZ, Texas
CALVIN M. DOOLEY, California
PATRICK J. KENNEDY, Rhode Island
CHRIS JOHN, Louisiana
JAY INSLEE, Washington
——— ———
BILL CONDIT, Professional Staff
MIKE HENRY, Professional Staff
DEBORAH LANZONE, Professional Staff
C O N T E N T S
Hearing held May 15, 1999
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Statements of Members:
Bryan, Hon. Richard, a Senator in Congress from the State of Nevada, letter to Mr. Gibbons
Cubin, 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
Additional material submitted by
Prepared statement of
Statements of witnesses:
Carpenter, Ann, Vice President, Exploration and Business Development, Nevada Colca Gold, Inc., Reno, Nevada
Prepared statement of
Coyner, Alan R., Administrator, Nevada Division of Minerals
Prepared statement of
Additional material submitted by
Dempsey, Stan, Chairman, Royal Gold, Incorporated, Denver, Colorado
Prepared statement of
Drozdoff, Leo M., Chief, Bureau of Mining Regulation and Reclamation, Nevada Division of Environmental Protection, Carson City, Nevada
Prepared statement of
Letter to Ms. Cherie Sexton
Letter to Ms. Cherie Sexton
Letter to Mr. Paul McNutt,
Letter to Mr. Dave Aberswerth and Bob Anderson,
Letter to Mr. Bob Anderson,
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Fields, Russell A., President, Nevada Mining Association
Prepared statement of
Guinn, Hon. Kenny C., Governor, State of Nevada, prepared statement of
Additional material submitted for the record by:
Ingle, Hugh, President, Nevada Miners and Prospectors Association, Yerington, Nevada
Prepared statement of
Kennedy, Larry, Exploration Manager, Battle Mountain Gold, Reno, Nevada Lewis, F. W., F.W. Lewis, Incorporated, Reno, Nevada
Prepared statement of
Miller, Glenn C., Cochair, Mining Committee, Toiyabe Chapter, Sierra Club, Reno, Nevada
Prepared statement of
Myers, Tom, Director, Great Basin Mine Watch, Reno, Nevada
Prepared statement of
Parratt, Ronald L., Commissioner, Commission on Mineral Resources, State of Nevada
Prepared statement of
Rhoads, Dean A., Chairman, Natural Resource Committee, Nevada State Legislature
Prepared statement of
Soberinsky, Victoria, Deputy Chief of Staff for Governor Kenny Guinn, State of Nevada
Additional material submitted:
Backgound Memo from the Committee
Federal Register, Notice of Intent and scoping
Loptien, Greg D., Sparks, Nevada, prepared statement of
Western Governors' Association, letters and prepared statement of
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Women's Mining Coalition, Reno, Nevada
Guinn, Hon. Kenny C., Governor, State of Nevada, prepared statement of
THE EFFECT OF FEDERAL MINING FEES AND PROPOSED FEDERAL ROYALTIES ON STATE AND LOCAL REVENUES AND THE MINING INDUSTRY
SATURDAY, MAY 15, 1999
House of Representatives,
Subcommittee on Energy
and Mineral Resources,
Committee on Resources,
Reno, Nevada.
The Subcommittee met, pursuant to call, at 2 p.m. at the Washoe County Commission Chambers, 1001 E. 9th Street, Building A, Reno, Nevada, Hon. Jim Gibbons presiding.
STATEMENT OF HON. JIM GIBBONS, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF NEVADA
Mr. GIBBONS. Ladies and gentlemen, it's my honor to open this Subcommittee on Energy and Mineral Resources hearing here in Nevada. To begin with, I want to welcome all of you here. We're going to make a slight change in the format simply because some of the witnesses that were on the first panel have been unavoidably detained, so we will end up starting with the second panel.
Let me also tell you that at the end of all of the hearing time for those people that are on scheduled panels, we're going to try to open it up, time permitting, for an open mike to let those public citizens out here that want to have a voice to be heard, we're going to offer them a minute or a minute and a half—I know that sounds like a short time, but when the TV cameras are on you, it's a long time.
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So figure out what you're going to want to say. We'll try to open it up so you will have an opportunity, if you weren't on one of the panels to begin with.
Let me also say that this hearing today is to hear testimony on the effect of Federal mining fees and proposed Federal royalties on State and local revenues and the mining industry, so we want to somewhat focus it down a little so we don't get too far adrift and start dividing our attention and focus on areas that may not be applicable to today's hearing.
Before I get to my remarks, I'm going to advise all of those panels that we have listed here that I will swear you in.
This is an official congressional hearing and you will be testifying under oath, and so I just want to advise you of the procedure that before we start with each of you, we will ask you to take an oath, which I will have you stand and administer to you.
Let me begin this morning by welcoming all of you here to this hearing, and we all know that Nevada is the largest gold producing State in the country and the third largest gold producer in the world. It's my honor and pleasure to welcome and thank you for taking time out of your busy schedules to share your thoughts on mining with this Committee. Today, we'll hear what I think is very important testimony on the effect of existing Federal fees such as the $100 per claim holding fee in addition to proposed Federal fees, such as royalties, on the mining industry, State and local economic activity and revenues.
The Committee also wishes to gather information on the probable effects of various existing and proposed Federal fees on trends in our Nation's domestic mineral exploration, production, and reserves.
Mining is a basic economic activity necessary to all mankind. The knowledge and use of metals is so important to human civilization that the progress of early man is marked by the advancement in his knowledge of metals. Man's most primitive period in tool making was known, of course, as the Stone Age. Man's subsequent technological advancements for the next 2,500 years is characterized by his increasing ability to work with metals, and the periods of this advancement are divided into the Copper Age, the Bronze Age, and the Iron Age.
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Now, as a former mining geologist, myself, and a cochairman of the Congressional Mining Caucus, let me say that I have a deep appreciation and understanding of Nevada's mining industry. Nevada, the Nation's leader in gold production, has 30 operating gold producing companies that employ more than 14,000 people; and these people mine more than $3 billion worth of metals annually, and Nevada alone provides an annual direct contribution to the Federal Government of more than $113 million.
As the second largest employer in the State, mining provides $1.5 billion in personal, business and State and local government revenues.
These numbers make it easy to realize why mining is such an important part of Nevada. Around the globe mining continues to be a basic economic activity which supplies strategic metals and minerals that are essential for modern agriculture, construction, and manufacturing.
A recent study by the National Research Council concluded that one of the primary advantages of the United States, that it possesses over it's strongest industrial competitors Japan and western Europe, is our domestic resource base.
The domestic mining industry provides about 50 percent of the metal used by U.S. manufacturing companies. The United States is among the world's largest producers of many important metals and minerals, particularly copper, gold, lead, molybdenum, silver, and zinc, and still has substantial domestic reserves of these metals.
Twelve western States containing more than 92 percent of U.S. public land account for nearly 75 percent of U.S. domestic metal production. Thus, much of the United States' future mineral supplies will likely be found on public lands in the West.
As I'm sure everyone here knows, the Second Congressional District, which I have the privilege of representing in Congress, encompasses some of the most important mining areas in the United States. Precious metal mining constitutes the majority of economic activity in the north central and northeastern parts of Nevada.
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One of the reasons why this Committee selected Reno for this hearing is not simply because I live here, but because Nevada is an important public lands mining State, with more than 87 percent of the Nevada lands managed by the Federal Government; and mining accounts for approximately 9 percent of our State's gross State product. Consequently, any detrimental effects of Federal mining policy are going to have a serious consequence to the mining industry and to the livelihoods of families across this State of Nevada.
Some seem to believe that mining doesn't matter in this new age. They think that the future of mankind can be secured without basic material resources. They often think that if they produce words and ideas in the ''information age,'' then nothing else is necessary. Well, they're wrong.
Mining matters to everyone. Mining makes our civilization and high living standards possible. Everything you will use today began in a mine. Everything you do today depends on mining. Today we'll examine the existing and proposed Federal policies, particularly those policies relating to royalties and fees toward mining on Federal lands.
Hopefully, what we learn here today will help us find out the consequences that these policies have had or will have on those who would invest their capital toward finding mineral deposits and developing mines.
There is an old adage out there. Many of you know it, and we're trying to spread it as far as we possibly can, and it goes: ''If it isn't grown, it has to be mined.'' And I think that is an important thought for all of us to maintain. With that, it's time for this hearing to begin.
[The prepared statement of Mr. Gibbons follows:]
STATEMENT OF HON. JIM GIBBONS, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF NEVADA
Welcome to Nevada, the largest gold producing state in the Country and the third largest gold producer in the world. It is my honor and pleasure to welcome and thank you for taking time out of your busy schedules to share your thoughts on mining with this Committee.
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Today we will hear important testimony on the effect of existing Federal fees, such as the $100 per claim holding fee. We will also hear testimony about the effect of proposed Federal fees, such as royalties on the mining industry, on state and local economic activity and revenues. The Committee also wishes to gather information on the probable effects of various existing and proposed Federal fees on trends in our nation's domestic mineral exploration, production and reserves.
Mining is a basic economic activity necessary to mankind. The knowledge and use of metals is so important to human civilization that the progress of early man is marked by the advancement in his knowledge of metals. Man's most primitive period of tool-making is known as the Stone Age. Man's subsequent technological advancement for the next 2500 years is characterized by his increasing ability to work metals, and the periods of this advancement are divided into the Copper Age, Bronze Age and Iron Age.
As a former mining geologist and Co-Chairman of the Congressional Mining Caucus, I have a deep appreciation and understanding of Nevada's mining industry. Nevada, the nation's leader in gold production, has 30 operating gold producing companies that employ more than 14,000 people. These people mine more than $3 billion worth of metals annually. Nevada alone provides an annual direct contribution to the Federal Government of more than $113 million. As the second largest employer in the State, mining provides $1.5 billion in personal, business, and state and local government revenues. These numbers make it easy to realize why mining is such an important part of Nevada.
Around the globe, mining continues to be a basic economic activity which supplies strategic metals and minerals that are essential for modern agriculture, construction and manufacturing. A recent study by the National Research Council concluded that one of the primary advantages that the United States possesses over its strongest industrial competitors, Japan and western Europe, is its domestic resource base. The domestic mining industry provides about 50 percent of the metal used by U.S. manufacturing companies. The United States is among the world's largest producers of many important metals and minerals, particularly copper, gold, lead, molybdenum, silver and zinc and still has substantial domestic reserves of these metals.
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Twelve western states, containing more than 92 percent of U.S. public land, account for nearly 75 percent of U.S. domestic metal production. Thus, much of the United States future mineral supplies will likely be found on public lands in the West.
As I'm sure everyone here knows, this Congressional district which I represent in Congress, encompasses some of the most important mining areas in the United States. In addition, precious metals mining constitutes the majority of economic activity in the north central and northeastern parts of Nevada.
One of the reasons why the Committee selected Reno for this hearing is because Nevada is an important public lands mining state, with 87 percent of Nevada's lands owned by the Federal Government and mining accounting for approximately 9 percent of the Gross State Product. Consequently, any detrimental effects of Federal mining policy are going to have serious consequences to the mining industry and to the livelihoods of families across this great State.
Some seem to believe that mining doesn't matter in this new age. They think that the future of mankind can be secured without basic material resources. They think that if they produce words and ideas in the ''information age'' then nothing else is necessary. They are wrong.
Mining matters to everyone. Mining makes our civilization and our high living standards possible. Everything you will use today began in a mine. Everything you do today depends on mining.
Today we will examine existing and proposed Federal policies, particularly those policies relating to royalties and fees, towards mining on Federal lands. Hopefully, what we learn today will help us find out the consequences that these policies have had or will have on those who invest their capital toward finding mineral deposits and developing mines.
Remember if it isn't grown, it has to be mined!
With that it is time to begin. Will the first panel please be seated.
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[The information follows:]
LETTER TO PARTICIPANTS FROM HON. HARRY REID, A SENATOR IN CONGRESS FROM THE STATE OF NEVADA
| The Hon. Harry Reid, |
| U.S. Senate, |
| Washington, DC, |
| May 14, 1999. |
Dear Hearing Participants:
I want to first thank Congressman Gibbons for allowing a statement to be read on my behalf, and I would also like to thank him for arranging this hearing.
The mining industry is an important part of Nevada's economy. Furthermore, our mining industry employs thousands of Nevadans who would otherwise be hard pressed to find employment in other areas.
This past week, I was able, through my seat in the Appropriations Committee, to include some language that will ensure that the Department of Interior takes into account a study that was mandated by Congress last year. This study is being conducted by the National Academy of Sciences and will cost nearly $1 million. To ignore this study, as is Secretary Babbitt's intention, is a sheer waste of taxpayer monies.
Again, I would like to thank Congressman Gibbons for his hard work on this issue, and I only wish that I could be there with you today.
With all best wishes,
Sincerely,
| Harry Reid, |
| United States Senator. |
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STATEMENT OF HON. BARBARA CUBIN, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF WYOMING
Our domestic hard rock mining industry has long utilized the public lands of the Western United States and Alaska as its primary exploration base. Indeed, since 1866 approximately three million acres of mineral rights have been patented to discoverers of valuable deposits of gold, silver, copper, lead, zinc, and many other mineral commodities which fall within the purview of the general mining laws. Of course, this figure represents only a small fraction of the public domain of this Nation (my home state of Wyoming alone is twenty times larger) but it is critical to the health of our industry because as geologists like to say ''ore deposits are where you find them.''
An early champion of these western miners was President Abraham Lincoln. Indeed, only a few hours before leaving for Ford's Theater on April 14, 1865, Mr. Lincoln wrote the following in a note to House Speaker Schulyer Colfax:
''I have very large ideas of the mineral wealth of our Nation. I believe it practically inexhaustible. It abounds all over the western country, from the Rocky Mountains to the Pacific, and its development has scarcely commenced . . . . Immigration, which even the war has not stopped, will land upon our shores hundred of thousands more per year from overcrowded Europe. I intend to point them to the gold and silver that waits for them in the West. Tell the miners from me, that I shall promote their interests to the utmostof my ability; because their prosperity is the prosperity of the Nation, and we shall prove in a very few years that we are indeed the treasury of the world.''
I would note that President Lincoln wasn't concerned with collecting fees from the western miners—President Polk had done away with attempting to collect mining royalties in 1848—rather, his focus was upon stimulating the economy of a still rather new nation. But, one hundred thirty years later this doesn't seem to be a concern of President Clinton one iota. In this Administration's zeal to protect the environment at all costs, and balance the budget on the backs of commodity producers, a flurry of user fees, tax changes and royalty proposals have found their way to Capitol Hill. Supplementing proposed law changes are rulemakings, Solicitor opinions and case adjudications which have not been subject to the legislative process to insure common sense prevails. And I, for one, believe that is what has been missing lately from Interior Department edicts.
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Our hearing today is intended to solicit views on this topic from those in the know—elected officials, state mining regulators, mining industry folks and concerned environmental advocates. I trust the record we are beginning to establish with this first of several planned field hearings in western venues will show there are negative impacts upon our local communities and state treasuries from poorly thought out policies advanced by the Clinton Administration. We are following in the wake of the National Academy of Sciences (NAS) panel who came to Reno recently to gather information on the mining regulatory environment. That panel was not charged with examining fee impacts, as we will do today, but we anxiously await its objective verdict on the necessity for the extraordinary changes in the surface management regulations proposed by Secretary Babbitt in February of this year.
The loss of mineral exploration jobs in this country over the last several years is well documented. If we lay off the prospecting end of the business sooner or later there are no reserves to replace those mined and fashioned into the products society demands. Oh yes, we may be able to import gold the chip makers need for the tech revolution, or platinum for automobile catalytic converters, etc. but not without doing damage to our already outrageous balance of trade, and not without taking good jobs away from Americans. We must think through the consequences of any legislative ''fixes'' sought by special interest groups as well as administrative rulemaking proposals, before taking or allowing actions which have been deemed to be in the ''public interest'' simply because the advocates for the changes have said so over and over again without sufficient rebuttal by affected parties. Of course, these folks have been too busy trying to make a living from mining, or are elected officials thousands of miles from the beltway who must legislate in the wake of the fed's unintended (and intended?) consequences. So we have come to you. Let's hear what you have to say.
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LETTER TO MR. GIBBONS FROM HON. RICHARD BRYAN, A SENATOR IN CONGRESS FROM THE STATE OF NEVADA
| United States Senate, |
| Washington, DC. |
| May 15, 1999 |
Congressman JIM GIBBONS,
400 South Virginia Street
Reno, Nevada 89501
Dear Congressman Gibbons:
Thank you for holding an oversight hearing in Reno today to discuss the effect of Federal mining fees and proposed Federal royalties on state and local revenues and the mining industry and its employees. As you know, mining is the second largest industry in the State of Nevada. In addition to direct employment in mining, there are also thousands of jobs in the State related to providing goods and services needed by the industry.
I regret that previous commitments prevent me from attending this hearing and I appreciate your efforts in bringing these important issues to the attention of our constituents.
Sincerely,
| Richard H. Bryan, |
| United States Senator. |
Mr. GIBBONS. I would ask the second panel to come up here and take a seat. And let me say that we're going to try to keep everybody to a certain time limit. You're welcome to summarize your statements. We will, of course, without objection, admit your written testimony for the record. It will be complete as it is submitted, and with that, I'd like to have the first panel stand, so I can administer the oath to them.
[Witnesses sworn.]
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Mr. GIBBONS. Let me take this moment to introduce our panel here. We have Russ Fields, President, Nevada Mining Association from Reno, Nevada; Alan Coyner, Administrator, Nevada Division of Minerals, Carson City; Ron Parratt, Commissioner, Commission on Mineral Resources for the State of Nevada from Reno.
Gentlemen, welcome, and we'll start with Mr. Fields. It's all yours.
STATEMENT OF RUSSELL A. FIELDS, PRESIDENT, NEVADA MINING ASSOCIATION
Mr. FIELDS. Thank you, Congressman.
I'm Russ Fields. I'm President of the Nevada Mining Association. We appreciate the Committee holding this field hearing in Reno.
Mining has always played an important role in Nevada's economy since before statehood. In 1998, Nevada mines led the Nation in precious metals production, producing some 76 percent of domestic gold and 38 percent of the Nation's silver, among many other minerals.
Any Federal action concerning hard rock mining has the potential to significantly impact Nevada and Nevada's mining industry. At the end of 1998, there were more than 13,200 men and women directly employed at the mines, and another estimated 43,000 jobs involved with providing goods and services to the industry.
The direct mining jobs are the highest paid sector in our State
economy. With an average annual salary of $50,000, this is well above the average salary in Nevada of less than $29,000. Direct mine annual payroll exceeds $650 million in Nevada.
Mining contributed over $1.81 billion to Nevada's personal incomes each year over the last couple of years. Mining's tax payments to State and local government in the 1996-1997 tax year totalled approximately $125.5 million.
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These tax payments come in the forms of sales and use tax, property tax, and Net Proceeds of Mines Tax. A large portion of these taxes stay with the local government. Over $1 billion in State and local taxes have been paid by the Nevada mines from 1987 through last year.
Producers of metals such as gold and silver and copper are price takers. That is, the price of their product is set in the world market place that cannot be affected by any single producer or groups of producers. Given this fact, the only business variable that a mine can control in the long run is its cost of production.
As an example: We're currently experiencing 20-year lows in the price of gold. In 1998, Nevada mines reduced their direct costs of production by an average of approximately $15 per ounce. This was done through gains in productivity brought about by improved efficiency and mining of higher grade material where possible.
Certain capital expenditures and exploration activities are being delayed, as well, to conserve cash. Unfortunately approximately 1,550 direct mining jobs were lost during 1998 as a result of tightening expenses. There is obviously a limit to how far expenses can be reduced.
As costs rise or prices fall, or both, what previously may have been counted on mining companies books as mineable reserves, may fall into an unmineable category. It's no longer ore because this material can no longer be mined at a profit.
If a mine's ore reserves are reduced due to economics, the life of a mine is shortened and the economic benefit of mining comes to an earlier end. Increased fees, costs, and royalties imposed by the Federal Government result in reduced ore reserves and therefore reduced mine lives. The result is a loss of employment and positive economic benefits on counties and communities.
A significant part of the discussion over the General Mining Law has surrounded the issue of royalty. Any royalty is an added expense and will have a negative impact on mining in communities in which mining takes place. However, if there is to be a royalty, a net proceeds type of royalty seems to fit hard rock mineral production the best, because it takes into account the cost of extracting the metal from the rock and the fact that producers have no opportunity to pass costs through to customers.
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When prices are low, as they are now for gold and copper, for example, the royalty amount will be lower; but under net proceeds, operations can stay in business and continue to employ people and make their contributions to the local economies.
When prices are higher, certainly the royalty amount will be higher. This is fair and equitable to the public and to the industry as well.
In summary, any increase in Federal fees reducing regulatory costs, or excuse me, including regulatory costs, fees and royalties, has the exact same impact on a mining company's bottom line as does the reduction in the price received from the mineral product.
Currently mining is facing many increased costs in this low-priced environment. Together, these increases in costs and reduction in prices result in impacts on local and State government as a result of business impacts on the mining industry. Given this situation, Congress should take great care as it considers the imposition of new fees and costs on this industry.
The specific impacts of any fee, royalty, or cost of compliance should be carefully evaluated.
Thank you very much, and I would like to personally thank you again, Congressman Gibbons, for holding this hearing in Nevada.
[The prepared statement of Mr. Fields follows:]
STATEMENT OF RUSSELL A. FIELDS, PRESIDENT, NEVADA MINING ASSOCIATION
I am Russ Fields, President of the Nevada Mining Association. We appreciate the Committee holding this field hearing in Reno. We are sitting only several hours away from the greatest gold producing region in North America. The Nevada Mining Association is the trade association for Nevada's mining industry. We have approximately 400 members ranging from several of the largest gold, silver and copper mining companies in the world to individuals who are interested in mining. Our members also include industrial minerals producers: miners of crushed stone, barite, limestone and gypsum, among others. Suppliers to the industry—those who provide the goods and services needed to conduct the business of mining—are also among our membership.
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NEVADA'S HARD ROCK MINERAL INDUSTRY
Mining has always played an important role in Nevada's economy. Indeed, it was the fabulously rich Comstock lode silver mines, just 17 miles from Reno that provided the economic engine and population that led to Nevada's becoming a state in 1864. Over the years, this state has had numerous episodes of mining for a wide variety of mineral products—copper, tungsten, lead, zinc, silver, antimony, gypsum, barite and the list goes on. Today, gold is by far our most important mineral product. In 1998, Nevada mines led the nation in precious metals production, producing some 76 percent of the domestic gold and 38 percent of the nation's silver.
Although Nevada's mining industry faces a number of important market, technical and regulatory challenges, the industry has developed a large, efficient and economically viable capital base that is fundamentally sound and sustainable well into the next century. This capital base has been built through investment of over $10 billion in expenditures in plant and equipment and exploration since 1980.
Any Federal action concerning hard rock mining has the potential to significantly impact Nevada and Nevada's mining industry. This state is approximately 87 percent owned by the Federal Government. These lands are held in the form of military withdrawn lands, wilderness, a national park and public lands managed by the Department of Interior, Bureau of Land Management and the U.S. Forest Service. The military lands, wilderness and park are, of course, off limits to mining. It is the BLM and Forest Service managed lands where a miner operating under the General Mining Law of the United States and myriad other Federal and state laws and regulations has an opportunity to develop hard rock mineral resources.
ECONOMIC IMPACTS OF MINING IN NEVADA
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At the end of 1998, there were more than 13,200 men and women directly employed by the mines and another estimated 43,000 jobs were involved in providing goods and services to the industry. The direct mining jobs are the highest paid sector in our state economy, with an average annual salary of $50,000. This is well above the average salary in Nevada of less than $29,000. Mining contributed over $1.81 billion to Nevadans' personal incomes in 1997.
In addition to the significant employment in Nevada's rural counties, with direct mine annual payroll exceeding $650 million, tax payments to state and local government in 1996-97 totaled approximately $125.5 million. These tax payments come in the form of sales and use tax—modern mining is extremely capital intensive with some single pieces of equipment costing in the millions—property tax and net proceeds of mines tax. A large portion of these taxes stays with the local government due to state tax distribution formulae. Over $1 billion in state and local taxes have been paid by Nevada mining from 1987 through last year.
The key to sustaining tax revenues from Nevada's minerals industry is maintaining capital investment in the industry's production capacity and in mineral exploration. Nevada's unique geology is clearly the most important factor in attracting capital investments and exploration expenditures. However, Nevada's tax and regulatory structure also play a key role in industry investment decisions. A reasonable tax and regulatory environment are critical to maintaining a world class minerals industry capable of sustaining production here in our state. More importantly, a consistent, reasonable Federal mineral policy is essential for the future of mining, both here and throughout the U.S.
THE BUSINESS OF MINING
There are some facts about modern hard rock mining that are relevant. First, for metals such as gold silver and copper, miners are price takers. That is, the price of their product is set in the world market place that cannot be effected by any single producer. The dynamics of the markets also preclude any group of producers from being able to have any significant effect on the price. Given these facts, the only business variables that a mine can control in the long run are its costs of production.
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As an example, we are currently experiencing 20-year lows in the price of gold. In 1998, Nevada mines reduced their direct cost of production by an average of approximately $15 per ounce. This was done through gains in productivity brought about by improved efficiency and mining of higher-grade material where possible. Certain capital expenditures and exploration activities are being delayed as well to conserve cash. Unfortunately, approximately 1,550 direct mining jobs were lost during 1998 as a result of tightening down on expenses. Many others involved in providing goods and services have also struggled during this period. That situation continues today.
Second, the regulatory climate for modern mining adds costs and time delays. The modern mining industry has largely agreed with the vast improvements in protection of land, water, air and wildlife over the past 15 to 20 years. These improvements, which absolutely distinguish modern mining's environmental practices from historic activities, do add significant costs to doing business. However, to the extent these changes are reasonable and actually benefit the environment and improve safety, mining has been supportive.
Third, because metals and other valuable minerals are distributed unevenly in the earth's crust, geologists focus on identifying concentrations of metals or minerals that have the prospect of being mined and produced at a profit. Concentrations that have this property are called ore deposits. Because the term ore, by definition, implies that it can be developed and produced at a profit, what is ore and what is not changes routinely with changes in price and changes in costs. As costs rise, or prices fall or both, what previously may have been counted in a mining company's books as ore reserves, may fall into an unmineable category. It is no longer ore because it can't be mined at a profit. If a mine's ore reserves are reduced due to economics (or any other reason), the life of the mine is shortened and the economic benefit of mining comes to an earlier end.
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EFFECTS OF FEDERAL FEES AND ROYALTY
The foregoing facts about the business of mining are well-recognized in our industry, but they bear repeating in some detail because increased fees, costs, royalties and so on imposed by the Federal Government result in reduced ore reserves and therefore, reduced mine lives. The obvious result is the loss of employment and the positive economic impacts on communities.
Exploration is one of the first mining related activities to suffer the effects of higher costs brought on by fees, royalties and so on, or lower prices. Exploration is the effort mining companies make to discover new mineral deposits to take the place of ore that is mined. Nevada, and the United States, has seen significant decreases in exploration activities over the past several years. In Nevada, the state Division of Minerals reported a 32 percent decline in exploration expenditures for 1997.
A significant part of the discussion over the General Mining Law has surrounded the issue of royalty. Any royalty is an added expense and will have a negative impact on mining and the communities in which mining takes place. However, if there is to be a royalty, a net proceeds type royalty seems to fit hard rock mineral production best because it takes into account the costs of extracting the metal from the rock and the fact that producers have no opportunity to pass royalty through to customers. When prices are low, as they are now for gold and copper, the royalty will be lower, but under net proceeds, operations can stay in business, jobs and contributions to local economies can be maintained. When prices are higher, the royalty will also be higher. This is fair and equitable to both the public and to the industry.
As opportunities in the United States are made less attractive because of more regulation and higher costs, including the effect of fees and royalties, the mining companies will leave for foreign venues. Mining capital is highly mobile. In this regard, Nevada and the United States are competing for mining business with the likes of Chile, Australia, Indonesia, South Africa and many other places that host economically recoverable mineral deposits. This results in lost opportunity for domestic creation of wealth through mining and the positive economic impacts at all levels.
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CONCLUSION
In summary, any increase in Federal fees, including regulatory costs, maintenance fees, royalties or the removal of any benefit, such as percentage depletion, has the exact same impact on a mining company bottom line as does a reduction in the price received for the mineral product. Currently, modern mining is facing many increased costs in a low price environment. This exacerbates the problem and increases the impacts on local and state government as a result of business impacts on the mining industry. This suggests that Congress should take great care when considering the imposition of new costs on this industry. The specific impacts of any fee, royalty or cost of compliance should be carefully evaluated.
We are particularly thankful for the Subcommittee's decision to come to Nevada to receive information to assist you in making good decisions.
Mr. GIBBONS. Thank you very much. Ladies and gentlemen, as you have noticed, there is a little light affair over here. This is the standard procedure. On the table up here, there is a green, a yellow and a red light. It's just like the stoplight you have in a traffic stop. When it's green, you can go and talk all you want; when it's yellow, you ought to be wrapping it up; and when it's red, remember, I possess the gavel, and the volume control on the microphone, in order for us to move along.
Before I go to the next witness, I was reminded that I was remiss in my duties as the chairman to recognize two distinguished individuals in the audience, both of whom are very dear friends, one of whom is more of a dear friend than the other. Senator Dean Rhoads is here, and my wife, Assemblywoman Dawn Gibbons, is here. I would like to welcome them both.
And as well, we have a wonderful group of people from I should say the ''People For the USA'' represented here as well, so welcome, everyone.
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Mr. GIBBONS. Mr. Coyner, the mike is all yours.
STATEMENT OF ALAN R. COYNER, ADMINISTRATOR, NEVADA DIVISION OF MINERALS
Mr. COYNER. Thank you, Mr. Chairman. I will ask you to have my testimony at hand because I will be referring to several charts. My name is Alan R. Coyner, and I'm the Administrator of the Division of Minerals for the State of Nevada.
The mission of the Division, as promulgated by the legislature, is to promote, advance and protect mining and the development and production of petroleum and geothermal resources in Nevada. In light of that mission, the Division has an ongoing concern about the negative economic impacts to the economy of our State from Federal mining fees, regulatory changes, and proposed royalties.
And certainly, as you know, hard rock mining is an integral part of Nevada history and the Nevada way of life. It is truly unique, paralleled but not equaled by any other State in the Union. And accordingly, Nevada has devoted a lot of time and energy and resources to maintain a healthy, viable, and above all, responsible mineral industry.
An essential component of this has been the relationship between the Federal agencies and the State and has resulted in what we call the Nevada Model, and it's something with regard to that cooperative relationship we're rightly and justly proud of.
This Committee is seeking to ascertain the effect of Federal mining fees and proposed royalties on State and local revenues, and with that in mind, I would like to supply you with data that provides evidence of the linkage between the regulatory environment and mineral exploration activity in our State, independent of the commodity price.
The Division conducts an annual exploration survey to determine the level of mineral exploration activity in Nevada, and responses are generally received from approximately 50 companies, all of which have exploration programs in the State.
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If you look at chart number 1, this is the active claims in Nevada, and you will see a curve described through the 1980s and early 1990s of increasing activity peaking in 1991, and then as rule making was promulgated with regards to the $100 mining claim fee, you will see that that enactment in 1993 resulted in the drop of claims from approximately 400,000 to 150,000 claims.
I've also put on there the price of gold. You can see that that drop is independent of that price. This drop in claims resulted in a loss of at least $25 million in annual assessment expenditures toward the discovery of new deposits and a redirection of $15 million annually from exploration to the Federal Treasury.
If you look at chart number 2, this is exploration expenditures for companies active in Nevada and this looks at the time period from 1994 through 1998. And you can see that range for those companies active in the State ranged from $450 million to $1.1 billion worldwide during a time of static or declining gold prices. But during that same period total dollars spent in Nevada declined from $154 to $120 million with a further decrease projected for 1998 of $94 million.
This is somewhat more easily seen in chart number 3 which is essentially percentage of expenditures, and again for that time period we can see the rising curve upwards of the rest of the world and the lowering curve for Nevada from 35 percent down to about 12 percent projected in 1998. Again this reduces or eliminates the influence of price, and suggests mining fees, proposed royalties, and the cost of regulation have negatively impacted the economy of our State.
Chart 4 I've borrowed from John Dobra, of the University of Nevada, Reno, and the Natural Resources Industry Institute, and it confirms the trend that the division has found, and extends it backward to about 1992, and you can see there, that under his data, firms active in North America were spending some 60 percent of their budgets in the United States, and that percentage is now down around 25 percent.
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This demonstrates especially that exploration dollars are extremely liquid and flow internationally.
And with that, I will also note that I've appended Dr. Dobra's remarks to my testimony. The Division has asked him to do a study in April of 1999 on the local impacts of this spending reduction. That report is due in early June, and we would appreciate the Committee allowing testimony to remain open to allow inclusion of that final report in June.
In conclusion, there is no question that current Federal fees and regulations have negatively impacted mineral exploration activity in the State of Nevada. They have played a major role in the exodus of exploration dollars and geological talent from Nevada and the United States to foreign countries.
Successful Federal mining policy must strike a reasonable balance among the need for regulation, environmental concern, and economic activity. The exploration surveys conducted by the Nevada Division of Minerals indicate recent Federal actions have upset that balance.
Mining claim fees, changes in the 3809 regulations, the Crown Jewel decision, and the enactment of a Federal royalty will only serve to increase the uncertainty and hasten the exodus. Thank you, Mr. Chairman.
Mr. GIBBONS. Thank you for a very timely presentation of the testimony. We'll have it all submitted for the record.
[The prepared statement of Mr. Coyner follows:]
Mr. GIBBONS. Mr. Parratt, the floor is yours.
STATEMENT OF RONALD L. PARRATT, COMMISSIONER, COMMISSION ON MINERAL RESOURCES, STATE OF NEVADA
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Mr. PARRATT. Thank you, Mr. Chairman. My name is Ronald Parratt, and I am here today in my capacity as a commissioner on Nevada's Commission on Mineral Resources, a position I've held for the last 8 years.
As background, I have been directly involved in private industry in mineral exploration in the western United States for almost 27 years, and I've lived here in Reno the last 20, working predominantly in Nevada and exploring for gold.
In 1993 the Bureau of Land Management implemented a $100 per mining claim fee, or about $5 per acre that was to be paid to the Federal Government in August of each year in lieu of the traditional assessment work or physical exploration that was previously required annually to keep a mining claim valid.
In 1993, prior to the fee, there were approximately 330,000 active mining claims in Nevada. Following the requirement of the fee in 1994, the number of active mining claims fell to around 140,000, or a reduction of almost 60 percent. Although I don't have comparable numbers for other states, I'm sure that similar reductions in the number of claims occurred as well.
Certainly in Nevada, some of these claims might have dropped for normal business reasons, although in my view, the principle reason, without doubt, was the claim fee. In support, I'd offer that I was responsible for dropping several thousand mining claims that year for my employer who was one of Nevada's larger explorers.
Filing fees paid for 1995, 1996, 1997 and 1998 in Nevada have generated a total of almost $60 million for the BLM, an average of almost $15 million a *year, and resulted directly in a corresponding reduction in exploration spending in Nevada during that time.
The great majority of mining claims in Nevada, and certainly throughout the west, are held for exploration purposes, and only a relatively small percentage of claims are actually in use for active mining operations.
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This means only a small percent of the aggregate mining claim fees are paid for out of the budgets of individual mining operations, and that the bulk of these fees are paid for out of exploration budgets. Again, payment of the fees directly results in reductions in actual exploration activity and a reduction in the industry's ability to discover new resources to replace those that are being mined.
This fee is another added cost for the business of exploration in Nevada and our country, and reduces the effectiveness of our precious exploration dollars. Not only does this hurt the exploration business per se, but also with the multiplier effect that translates into fewer jobs for those industries which service exploration groups such as drilling contractors, laboratories, restaurants and even motel owners.
Much of this activity, of course, is in Nevada's rural communities.
To put some perspective on the size of this burden to the exploration business, it's estimated that in 1998 between $90 and $100 million were spent in Nevada on exploration. Mining claim fees paid to the BLM for that year were $13 million, which results in adding a budget burden of about 13 percent to the industry as a whole just to hold Federal land.
For some added perspective, comparable costs for holding exploration rights on lands in countries who are competing to get these dollars and jobs are as follows—for comparison, keep in mind the United States fee is about $5 per acre:
Canada has a variable structure but always less than a dollar per acre; Mexico again is variable, but always less than 50 cents per acre; Chile, 48 cents per acre; Peru, 80 cents per acre; and Argentina, 11 cents per acre. New proposals, including royalties and new reclamation fees are being considered as well, which would further burden mining companies and exploration. The cumulative impact of these will be to further weaken and reduce the effectiveness of our exploration dollars and has weakened the competitiveness of our domestic mining industry.
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We must do everything possible to keep this from happening and seek to encourage a strong domestic industry. Thank you.
[The prepared statement of Mr. Parratt follows:]
STATEMENT OF RONALD L. PARRATT, COMMISSIONER, COMMISSION ON MINERAL RESOURCES, STATE OF NEVADA
Mr. Chairman and Members of the Resources Committee, my name is Ronald L. Parratt and I am here today in my capacity as a Commissioner on Nevada's Commission on Mineral Resources—a position I've held for the past 8 years. As background, I've been directly involved in the private sector in mineral exploration in the western United States for almost 27 years and have lived here in Reno for the last 20 years working predominately in Nevada exploring for gold.
In 1993, the Bureau of Land Management implemented a $100 per mining claim fee ($5/acre) that was to be paid to the Federal Government in August of each year in lieu of the traditional assessment work or physical exploration that previously was required annually to keep a mining claim valid. In 1993, prior to the fee, there were approximately 330,000 active mining claims in Nevada. Following the requirement of the fee in 1994, about 190,000 claims were dropped and the number of mining claims fell to about 140,000 or a reduction of almost 60 percent. Although I do not have comparable numbers for other states, I'm sure that similar reductions in the number of claims occurred as well. Certainly in Nevada some of these claims might have been dropped for normal business reasons. However in my view, the principle reason was the claim fee. In support I would offer that I was responsible for dropping several thousand mining claims that year for my employer who was one of Nevada's larger explorers. Filing fees paid for 1995 to 1998 have generated about $60mm for the BLM—an average of almost $15mm per year and resulted directly in a corresponding reduction in exploration spending in Nevada during that time. The great majority of mining claims in Nevada—and certainly throughout the west—are held for exploration purposes and only a relatively small percentage of claims are actually in use for active mining operations. This means only a small percentage of the aggregate mining claim fees are paid for out of the budgets of actual mining operations and the bulk of these fees are paid for out of exploration budgets.
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Again, payment of the fee directly results in reductions in actual exploration activity and a reduction in the industry's ability to discover new resources to replace those being mined. This fee is another added cost for the business of exploration in Nevada and our country and reduces the effectiveness of our precious exploration dollars. Not only does this hurt the domestic exploration business per sec, but also with the multiplier effect, it translates into fewer jobs for those industries which service exploration groups such as drilling contractors assay laboratories and motel owners. Much of this is in Nevada's rural communities.
To put some perspective on the size of this burden to the exploration business, it's estimated that in 1998 between $90mm and $100mm was spent on exploration in Nevada. Mining claim fees paid to the BLM were about $13mm which results in this fee adding a budget burden of about 13 percent to the industry as a whole just to hold Federal land.
For some additional perspective, comparable costs for holding exploration rights on lands in countries who are competing to get these exploration dollars and jobs are as follows; (and for comparison keep in mind that the U.S. Federal fee is $5/acre) Canada less than $1/acre, Chile $0.48/acre, Peru $0.80/acre and Argentina $0.11/acre. Mexico is also low but I don't have an exact figure.
There are of course additional fees paid to hold mining claims in the U.S. which total about $15/claim per year. New proposals including royalties and new reclamation fees are being considered as well which would further burden mining companies and exploration. The cumulative impact of these will be to further weaken and reduce the effectiveness of our exploration dollars and hence weaken the competitiveness of our domestic mining industry. We must do everything possible to prevent this from happening and seek to encourage a strong domestic industry. Thank you.
I'd be pleased to answer any questions.
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Mr. GIBBONS. Thank you, Mr. Parratt, and I want to congratulate the first panel here that's testified. Not one of you got to the red light. We appreciate that.
Let me maybe throw a question out there. I don't know if Mr. Fields or Mr. Coyner or Mr. Parratt want to answer this, but my original question is for the audience and I think even for the record, we need to know a little bit about the different types of royalty proposals that are out there. I know that one we talked about already is a gross royalty, versus net proceeds, versus net smelter return. Maybe if somebody could just give us a very brief—it's a very technical question, but if somebody wants to give us just a thumbnail sketch so we can understand how each one of those impacts the bottom line, and what each one would produce, if you can.
Mr. FIELDS. Okay, I will tackle that, Mr. Chairman. This is Russ Fields, for the record.
Of the three types of royalties you mentioned, let me start with gross royalty. This is one that has been proposed in the last several Congresses, and in several bills.
Gross royalty is a royalty that would be imposed on the gross sales price of the mineral commodity, whether it be gold or copper, et cetera. It would be applied directly to that price that is received.
For example: Today the price of gold is about $276. An 8 percent gross royalty, which has been proposed in the past, would amount to approximately $23 per ounce of gold. As my testimony indicated, this would be the same thing as a $23 fall in the price of gold.
It would go right through to the bottom line, bringing the value received to the mining company then to something like $253, based on today's gold price.
Now, the problem with that, from the mining company's standpoint, is that is very close to the cash cost of production, the direct cost in terms of dollars to produce an ounce of gold at many of our gold mines here in northern Nevada.
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That means that there is nothing left over to pay back the cost of capital. There is nothing left over to pay for administrative overhead and expenses, and, as Mr. Parratt will attest, there is nothing left to pay for exploration activity to find the next ore deposit.
I think the result of a gross royalty along those lines would be a very rapid slowdown in the production of hard rock minerals here in the State.
I think we would see high grading of ore deposits and shortening of lives, as I mentioned in my testimony, shortening of mine lives. And the impacts of such a royalty would be very, very substantial.
Now, the second type of royalty that has been discussed in Congress is referred to as a net smelter royalty, and really, with net smelter and the other type that I will discuss, net proceeds, the devil is in the details, how you really define the royalty.
But net smelter royalty for most purposes, would be defined as taking the gross value of the gross receipts, gross revenues produced by the minerals.
Again let's use gold as an example. At $276 an ounce, you'd take that gross $276 and deduct from that the cost of final refining, producing refined metal out of the door, that is the gold and silver mix that we produce at our mines, and then apply the royalty to that, so it's very close to a gross royalty because the cost of refining as a percentage of the total cost, is very small.
I have mentioned in my testimony that if there is to be a royalty, it should be based on a net proceeds type approach. That's what we do here in the State of Nevada for our taxation of minerals. It's called the Net Proceeds of Mines Tax.
What that does, is it allows a miner to deduct the cost of producing the metal and turning the metal into money, so in other words, the cost of mining, the cost of milling, the cost of transportation, those costs are allowed to be deducted from the gross receipts, leaving a net profits number, and that is the point at which royalty would be affixed, at the net proceeds level.
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It makes more sense in many ways because when the markets fluctuate so much, when the price is high the royalty amount will be higher. When the price of the metal is low, the amount of Royalty will be lower, so it allows a mining company, then, to perhaps stay in business and then continue to operate even while it pays a royalty, which may not be the case in the case of a gross.
That was longer than my testimony I apologize for that.
Mr. GIBBONS. You did very well. It was very enlightening to hear what you say.
Let me turn to Mr. Coyner. Could you maybe explain or expand a little bit more on the Nevada Model that was in your testimony so that we can develop that a little further.
Mr. COYNER. One of the largest—or a factor within that model, is the testimony that Russ just gave. It's a net proceeds approach on a royalty which, I think implies we're in this thing together, and that can be extrapolated to a national sense as well.
These minerals and others in our State are necessary for our national security, as you well know, and there should be a participatory process of all the owners in that security.
As we look at the mining companies that are active in the State, most are public stock companies. A lot of that stock is held by Americans. So it does imply that we're in this together and we need to make those decisions together.
The Nevada Model is a subset on that. Essentially the State agencies, the Federal agencies, the environmental groups, all the stake holders come together and forge this process as we go forward in Nevada.
We appreciate that, and that's a very good working relationship. It resolves differences early. It obviates the need for lawsuits. It makes for good working relationships and friendly working relationships.
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So that, in essence, is the Nevada Model. It's been copied by other States which gives testimony to its effectiveness.
Mr. GIBBONS. Mr. Coyner, on these charts that you have submitted to us, is there a point on there which you can identify for us the time in which the Nevada Model or the net proceeds implementation took effect in this chart, perhaps to show if there is a significant downward trend simply due to Nevada's implementation of a net proceeds royalty?
Do you recall what year we implemented that?
Mr. FIELDS. Mr. Chairman, this is Russ Fields, for the record. The Net Proceeds of Mines Tax has been a part of Nevada since the very early days. In fact, I think it is in the Constitution that mines shall be taxed on their net proceeds, so it's a very, very old tax that goes way back before any of, I think, Mr. Coyner's charts.
I would say that I had the opportunity in 1989 to be very involved with the State government's efforts to adopt its reclamation program which—and also its water pollution control program for mines.
Both of those things happened in 1989, and I think that was probably, in my recollection, realistically where we could say that the Nevada Model was born. It was a collective cooperative effort of State agencies, the Federal Government, the environmental community, and mining industry, so there, again, I think that probably predates everything on Mr. Coyner's charts.
I'm looking at the Active Claims in Nevada chart over my neighbor's shoulder here, and what happened in 1993 to the mining claims had nothing to do with the State of Nevada and had everything to do with the imposition of a $100 per claim per year holding fee from the Federal Government, so that's probably the most remarkable thing that is affecting the charts that I'm looking at here.
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Mr. COYNER. Mr. Chairman, I would add that I think that if Dr. Dobra were here he would express that the 1990s and it's capital development and development expenditures and also our production have risen and that is sort of an inertia effect of all this exploration and activity that we saw in the 1980s and the early 1990s.
The problem we see now is that that exploration activity has been curtailed, so the worry is for the future. Certainly, as we need to replace these reserves Mr. Parratt spoke of, we have a need to expend those exploration dollars, and they are not being spent in considerable amounts.
I mean we're talking multi-hundreds of millions of dollars per year that are not being spent in Nevada, and that's significant.
Mr. GIBBONS. The point I want to make is that the imposition of Federal royalties, is it your opinion that it will have a dramatic lowering of the production from the mines of metals and minerals in this State?
Mr. COYNER. Certainly if the royalty is in any way punitive or high relative to other countries in the world. Again, mineral production is a global business. Money flows to where it is welcome. If those royalties are excessive or judged to be excessive, production will go off shore.
Mr. FIELDS. If I may Mr. Chairman, just to add a little bit to that: Yes, the impact would be immediate. I think the charts that you see here about what happened to the mining claims, this speaks to the fact that business will react immediately to its business conditions. It will not wait. It has other opportunities.
We could definitely see an exodus certainly first of exploration, a slowdown of mining, and then decline and stoppage of mining if the royalty is onerous enough. It would be very simple to overturn this apple cart right now, especially with the low price environment that our mines are dealing with.
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Mr. Coyner's Division of Minerals has estimated that approximately 30 percent of Nevada's nation-leading gold production is derived from public lands, today. That 30 percent represents now approximately three million ounces of gold, which is more than any other State produces, coming right from Nevada.
Now, that royalty, any Federal royalty would be applied to that 3 million ounces of gold if something were to happen today.
I also submit, as you mentioned in your opening remarks, that the future of the mining industry in Nevada is on public lands; that 30 percent is going to increase over time if we can preserve the status quo, because 87 percent of our State is owned by the Federal Government.
There is simply no other place to explore than on public lands, so if we were to have a Federal royalty, in the future, it will be imposed upon any new discoveries that are made on those Federal lands.
The big IF, though, is will there be any exploration of those lands? I suspect that there will be much less if there is a gross royalty. So the imposition of any royalty will have an immediate negative impact on the State of Nevada, its State government, its local government, its communities and certainly the mining industry.
Mr. GIBBONS. Well, let me ask each of you to put on a hat that has a broader perspective and wider vision than just the State of Nevada. Do any of you have an opinion as to the effect of a reduction in our mining capability with regard to our national economy or our national defense, natural security? The role mining plays nationally would be affected in some way by this, and if any of you have any thoughts, I'd like to hear about that.
Mr. PARRATT. Well, there is no doubt that everything in our economy runs from mining because as you said earlier, if it can't be grown it has to be mined, everything from the computers we operate, to the building we're in, to the lights that are illuminating this room are coming from mining. We have to preserve a strong industry in this country. Mining is very, very important to our economy.
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Mr. FIELDS. The State of Nevada is blessed with, as you know, Mr. Chairman, the kind of geology that is conducive to lots of various types of minerals.
In the past this State has produced tungsten; it's produced antimony; it's produced molybdenum; it's produced manganese. The list goes on and on.
Today we're producing gold and silver and copper and a variety of industrial minerals, but all of these minerals are somehow used to make this Nation strong. For example, tungsten, is used in the hardening of steel which is used in weaponry.
We need those, obviously we do. Gold, now, is so important in electronic components, computers. When this Nation does its work overseas in the war arena, which we do from time to time, we have to have gold to make those components work correctly the first time, every time.
So that is just a small example, and certainly there are others who'll testify today who have lived the time when we were in major wars and we needed to have the mineral commodities that this State can produce, and this Nation can produce.
Another thing that is important is our mineral production, especially for gold, is allowing the United States to be a net exporter of gold. It does contribute to the balance of trade for this United States, which, it's a contribution. It's certainly not enough to say that we're going to turn that balance of trade around, but it's a contribution. Nevada is doing its part for the balance of trade.
Mr. GIBBONS. I just have two final questions for this panel, and then we'll try to move on.
Mr. Coyner maybe I can direct this to you. The Nevada Division of Minerals, has it made any estimates of remediation? I know in the past practice of mining, we have a lot of abandoned mines out there which no company today would tolerate or even be permitted to contribute to, but we have the remediation cost question, I'm sure.
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Have you tried to quantify the abandoned mine lands problem in Nevada in terms of dollars, and do you have any handle on what the eventual total cost would be to solve this problem?
Mr. COYNER. The Nevada Division of Minerals is charged with the physical securing of hazardous mines in the State. With the abandoned mines programs we have, we estimate those numbers to be in the 50,000 to 100,000-type range in terms of hazardous openings.
The cost of each of those to remediate is about $500 per site or so, so that would give you a fee or figure on the physical hazard side. Now, if we're going to talk about the environmental hazard side, it's a much larger issue and a much bigger number.
I don't think anyone in this State has really put their mind to it yet in terms of what that total is, but let me say in that regard, that we have recently struck up an interagency task force of both the State agencies and the Federal agencies utilizing monies that are coming to us from the BLM to take a look at exactly that problem and try to get a handle on that.
So in order to put a total number on that right now would be somewhat premature, and again, it depends on what you call satisfactory with regards to the remediation. How much, to what level must you remediate it.
It's a national issue. It's being tackled actively in places like Colorado, Montana, and California as well, and we're doing the same here in Nevada, but I really can not put a number on it here for you today, Mr. Chairman.
Mr. GIBBONS. Finally, let me ask a question about educational outreach. I know all of you have been involved in that for some time, and maybe you can explain to us for the Committee and for the record, your educational outreach for Nevada students with regard to mining.
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Mr. COYNER. I will start with that. As you know, Russ Fields was my predecessor at the Division of Minerals, so we have both been very actively involved in our education program there, and we partner that program with the Nevada Mining Association and with members of the industry.
There are many, many professionals involved in the business today in Nevada that feel quite strongly about mineral education of our people and of our school children.
We sponsor in Nevada, teachers' workshops twice yearly, one in the spring in Las Vegas and one in the summer in northern Nevada. These are very well attended and very highly spoken of. Again those are partnered with industry and the Nevada Mining Association. We regularly go into the school classrooms. My division alone does over 200 presentations during the course of the school year, and everyone from our secretary/receptionist to the administrator participates in those duties.
We feel very strongly about that mission and getting that word out to the Nevada schoolchildren. And finally I think we do need to realize that of the 1.8 million people in our State, 1.3 million live in Las Vegas and that, again, is a very unique thing to Nevada. We do have a brand new growing population down there that needs to hear that message and needs to understand why mining is important to them, so we're very concerned about that.
And we continue to push regularly and hard on that mineral educational issue.
Mr. GIBBONS. Finally, before I let you go—I know, I promised you just two questions, but I can't let you go without this one.
Do you see an area, any of you see an area, knowing the present status of Nevada laws, where the Federal Government needs to enact stricter laws that have been overlooked on your behalf, or an area where you think the Federal Government should step in to enact stricter laws because the State for some reason may have failed or is unable to proceed in that area?
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Mr. FIELDS. No. I think the point that needs to be made to the Federal Government is that the production of hard rock minerals is an activity that requires closeness—I'm not sure that's the right term, but close oversight from local and State regulators, because of the unique character of different kinds of mines, and conditions.
We have mines here in areas that produce 2 inches per year of rainfall. Montana has mines in areas that produce 50 inches of rainfall, and Alaska, much more. How can the Federal Government come up with a one-size-fits-all type of regulation to deal with the wide variety of mineral resources that we have and the wide variety of climatic, geographic and economic conditions that we have?
I think the current debate over the 3809 regulations is a case in point. Nevada has developed a network, a system of regulations that work very well for Nevada. Other states have developed networks, systems of laws and regulations that work very well for their conditions.
I think the role for Federal oversight is just that. It's an oversight to make sure that broad public policy guidelines are being met, but leave it to the local States actually to do the regulation on them.
Mr. GIBBONS. I'm not his straight man.
Mr. Coyner?
Mr. COYNER. Mr. Chairman, I would add something from one small perspective, which is the State bond pool. The Division of Minerals does administer that program for the State, which helps the smaller and moderate-sized mining companies meet their bonding obligations.
The track record of that bond pool has been one of no forfeitures during the time of it's existence. So we have demonstrated the State can respond on that level and manage that actively and with satisfaction.
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Another point I will make is that we have had several companies in difficult times in the recent past year or two with regard to finances and bankruptcy. The system, because of the well-thought-out nature of it in Nevada, has responded to those timely and with decision, and it's being managed in a proper and appropriate way.
So, again, I think the evidence is the Nevada Model, if you want to call it that, responds to various situations, is very well designed and suits our State very well and good.
Thank you.
Mr. GIBBONS. Mr. Parratt.
Mr. PARRATT. I can only agree with what my counterparts at the table have said. I think things are going quite well in Nevada. I don't think we need any additional regulations on the Federal side.
Mr. GIBBONS. Well, gentlemen, thank you very much for your time and testimony here today. It's been very helpful, and we appreciate you being present today to help us better understand Nevada, its mining industry, and the future in hand for where we want to go.
With that, I'll go ahead and release this panel and call the next panel up. I don't know if Assemblywoman Marcia de Braga has made it to the room, but it will consist of Victoria Soberinsky, the Deputy Chief of Staff for Governor Kenny Guinn; Senator Dean Rhoads, we have also mentioned here earlier, Chairman, Natural Resource Committee, Nevada State Legislature; and Assemblywoman Marcia de Braga, Chairman of the Natural Resources, Agriculture, and Mining Committee for the Assembly, Nevada State Legislature.
Mr. GIBBONS. Do we only have the two of you?
[Witnesses sworn.]
Mr. GIBBONS. It's good to see you. Let me welcome both of you to the panel today. I apologize for the delay. We appreciate your time, your patience in waiting, and Mrs. Soberinsky, the floor is yours.
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STATEMENT OF VICTORIA SOBERINSKY, DEPUTY CHIEF OF STAFF FOR GOVERNOR KENNY GUINN, STATE OF NEVADA
Ms. SOBERINSKY. Thank you very much, Mr. Chairman, and for the record my name is Victoria Soberinsky, and I am the Deputy Chief of Staff for Kenny Guinn in Nevada.
I appreciate the opportunity to testify today regarding the effects of Federal mining fees and proposed Federal royalties on State and local revenues and the mining industry.
Mining is an integral part of Nevada history and the Nevada way of life. Nevada continues to be a world leader in gold production and produces the most silver, magnesite and barite in the Nation. Accordingly, Nevada has devoted a tremendous amount of time and resources over the years to create and maintain a strong and responsible mining industry.
I believe that Nevada is one of the most environmentally responsible mining regions in the world; however, even with Nevada's successes and proven track record, I believe Congress and the State should continue to work with the industry and the environmental community to continue to minimize mining effects on the land and the other land users.
To be clear, the issues of reasonable Federal mining fees and proposed Federal royalties are legitimate discussion points. However, the impact from these proposed fees, royalties and proposed Federal regulations on my State, our local communities and the mining industry are equally important.
The industry is an important contributor to the Nation's economy and my State's economy in particular. Nevada's mining industry has created approximately 13,000 jobs directly related to mining with an additional 45,000 jobs indirectly related to the industry.
Generally speaking, these are high paying jobs that average close to $50,000 per year. Rural Nevada communities, such as Elko, Carlin, Battle Mountain, Winnemucca, Ely, Eureka and Tonopah are all dependent on a vibrant mining industry.
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As you contemplate proposed Federal fees and royalties and have the opportunity to review proposed Federal regulations, I hope you will keep in mind those communities and those families who built a future around a responsible and environmentally sensitive mining industry.
I'd like to make some brief remarks about the Department of Interior's initiative to amend its land management, or 3809 regulations.
Nevada has closely monitored this initiative since the Secretary of Interior directed the BLM to draft regulations in January of 1997. Since that time there has been no real justification offered by Interior regarding the need to make changes.
Some people in groups have described our opposition to the 3809 revision as anti-environmental. I can assure you that nothing can be further from the truth. Nevada has strong State laws and regulations requiring reclamation of land disturbed by mining.
Today, Nevada holds over $500 million in reclamation sureties to ensure successful reclamation. My State has also developed comprehensive regulations governing water quality standards at mining operations. These requirements are working well because the environmental community, mining industry, and State and Federal regulators crafted them with a great deal of cooperative effort.
Nevada's opposition to BLM's draft 3809 regulations is based on the fact that our comments and input regarding this action have largely been ignored.
I believe the current draft regulations are onerous, unnecessarily burdensome and duplicative. In short, Interior is attempting to move the responsibility for environmental oversight of mining operations from Nevada and other western States to Washington, DC.
Interior's efforts would clearly and significantly impact Nevada's mining industry; but they will also adversely impact Nevada's economy and our environment.
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Nevada is the most arid State in the Nation. The condition of public lands and the reliable quality and quantity of Nevada's water resources are vitally important to our State. Nevada has demonstrated it's eminently qualified to protect these resources. Another level of Federal bureaucracy is simply not necessary.
I believe reasonable mining fees and Federal royalties would benefit all stake holders, including the States, Federal Government, and industry. Proposed changes in mining fees should end the $2.50 to $5 per acre patenting fee and replace it with provisions to sell the patent for the surface land's market value. This type of royalty would closely resemble the State of Nevada's net proceeds system.
The administrative costs of our program are $250,000 annually, but the system has historically generated millions of dollars on an annual basis.
Nevada would support these types of fee and royalty proposals because they are fair. While these fees would clearly increase costs in these difficult economic times, industry could benefit because it would reduce some uncertainties and risks associated with mining in the United States today.
The price of gold today is approximately $280 per ounce. This very large variable has been the main force behind the loss of nearly 1,000 jobs across Nevada in the last 2 years.
While commodity prices cannot be controlled, the need to reduce other variables is evident. Nevada would support improvements in the status quo in the areas of fees, royalties and regulations, as long as they have a benefit and are consistent with our goals and objectives, most notably to have a strong, well-regulated, environmentally sound mining industry.
Thank you very much, Mr. Chairman.
Mr. GIBBONS. Thank you very much, Ms. Soberinsky.
[The prepared statement of Hon. Kenny C. Guinn follows:]
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STATEMENT OF HON. KENNY C. GUINN, GOVERNOR, STATE OF NEVADA
Mr. Chairman and members of the Subcommittee, I appreciate the opportunity to testify today regarding the effects of Federal mining fees and proposed Federal royalties on State and local revenues and the mining industry. Mining is an integral part of Nevada history and the Nevada way-of-life. Nevada continues to be a world leader in gold production and produces the most silver, magnesite and barite in the nation. Accordingly, Nevada has devoted a tremendous amount of time and resources over the years to create and maintain a strong and responsible mining industry. I believe that Nevada is one of the most environmentally responsible mining regions in the world. However, even with Nevada's success and proven track record, I believe Congress and the states should continue to work with the industry and the environmental community to continue to minimize mining effects on the land and the other land users.
To be clear, the issues of reasonable Federal mining fees and proposed Federal royalties are legitimate discussion points. However, the impacts from these proposed fees, royalties and proposed Federal regulations on my state, our local communities and the mining industry are equally important. The industry is an important contributor to the nation's economy—and my state's economy in particular. Nevada's mining industry has created approximately 13,000 jobs directly related to mining, with an additional 45,000 jobs indirectly related to the industry. Generally speaking these are high paying jobs that average close to $50,000 per year. Rural Nevada communities such as Elko, Carlin, Battle Mountain, Winnemucca, Ely, Eureka and Tonopah are all dependent on a vibrant mining industry. As you contemplate proposed Federal fees and royalties and have the opportunity to review proposed Federal regulations, I hope you will keep in mind those communities and those families who built a future around a responsible, environmentally sensitive mining industry.
I would like to make some brief remarks about the Department of Interior's initiative to amend its land management or 3809 regulations. Nevada has closely monitored this initiative since the Secretary of Interior directed the BLM to draft regulations in January 1997. Since that time, there has been no real justification offered by Interior regarding the need to make changes. Some people and groups have described our opposition to the 3809 revisions as anti-environmental. I can assure you that nothing can be further from the truth. Nevada has strong state laws and regulations requiring reclamation of lands disturbed by mining. Today, Nevada holds over $500 million in reclamation sureties to ensure successful reclamation. My state has also developed comprehensive regulations governing water quality standards at mining operations. These requirements are working well because the environmental community, mining industry, and state and Federal regulators crafted them with a great deal of cooperative effort. Nevada's opposition to BLM's draft 3809 regulations is based on the fact that our comments and input regarding this action have largely been ignored. I believe that the current draft regulations are onerous, unnecessarily burdensome and duplicative. In short, Interior is attempting to move the responsibility for environmental oversight of mining operations from Nevada and other Western states to Washington, D.C. Interior's efforts would clearly and significantly impact Nevada's mining industry, but they will also adversely impact Nevada's economy and our environment, Nevada is the most arid state in the Union. The condition of public lands and the reliable quality and quantity of Nevada's water resources are vitally important to our state. Nevada has demonstrated that it is eminently qualified to protect these resources. Another level of Federal bureaucracy is simply not necessary.
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I believe reasonable mining fees and Federal royalties would benefit all stakeholders including the states, Federal Government and industry. Proposed changes in mining fees should end the $2.50 to $5.00 per acre patenting fee and replace it with provisions to sell the patent for the surface land's fair market value. This type of royalty would closely resemble the State of Nevada's net proceeds system, which has proven to be highly effective. The administrative costs of our program are $250,000 annually, but the system has historically generated millions of dollars on an annual basis.
Nevada would support these types of fee and royalty proposals, because they are fair. While these fees would clearly increase costs in these difficult economic times, industry could benefit because it would reduce some uncertainties and risks associated with mining in the United States today. The price of gold today is approximately $280 per ounce. This very large variable has been the main force behind the loss of nearly one thousand jobs across Nevada over the last two years. While commodity prices can not be controlled, the need to reduce other variables is evident. Nevada would support improvements to the status quo in areas such as fees, royalties and regulations as long as they have a benefit and are consistent with our goals and objectives, most notably to have a strong, well regulated, environmentally sound mining industry. Thank you.
Mr. GIBBONS. Senator Rhoads, welcome, and the floor is yours.
STATEMENT OF DEAN A. RHOADS, CHAIRMAN, NATURAL RESOURCE COMMITTEE, NEVADA STATE LEGISLATURE
Mr. RHOADS. Thank you.
Good afternoon, Mr. Chairman. I'm Dean Rhoads, Chairman of the Nevada Senate Natural Resources Committee. I wondered perhaps, when this hearing is over with, if you could do Dawn and I a favor and lend us your light there for the legislature.
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Mr. GIBBONS. It is a wonderful thing.
Mr. RHOADS. We have 16 days left, and I'm sure if we had that light there we could cut it down to 8.
Mr. GIBBONS. I will see if I can send you a copy of it.
Mr. RHOADS. Mining is an industry, as you know, that I have spent many years hearing about from your side of the table. It's a pleasure to be here today, after four months of the legislative session, to sit on the witness side to share with you some of my observations I've collected for over the years.
As a rancher from Tuscarora, in the morning I could look out and see the Independence Mine, and in the spring we'd drive the cattle down through Barrick, Rodeo, Meickle and Newmont's mine, and by the Digal mine and by Rossi Mine.
I've spent almost all my entire professional career working near mining and learning about its effects on rural communities. In 1977, when I was elected to the Nevada Assembly I began considering mining from a policy perspective. My experiences as a legislator have brought to life the complexities of mining on a statewide level.
In 1985, I was appointed to the interim Public Lands Committee, a committee which I've chaired since that time. I've also been Chairman of the Natural Resources Committee since 1995.
While mining exists throughout Nevada, it's my Senate District that is the most productive mining region in the State, and arguably, the third most productive region in the world. I represent Elko, Lander, Humboldt Counties and most of Eureka County. The effects that mining has had on my District over the years has been profoundly positive at times and very poor at others due primarily to market fluctuations.
The simple fact is that the value of Nevada's primary ores—gold, silver, and copper, are established on the open market. Economic fluctuations, sometimes severe, are felt throughout the rural communities that I represent.
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These counties depend on tax revenues from the Net Proceeds of Mines. Even with the current depressed market, Net Proceeds of Mines constitutes between 20 percent to—in the case of Eureka County—50 percent—of the rural counties' assessed valuation. In contrast, net proceeds of Mines in Clark County is only $8 million of the county's total $26 billion in assessed valuation.
Additionally, there have been roughly 1,500 layoffs over the past year, year and a half, throughout Nevada. Yet, these laid-off workers come primarily from rural Nevada, representing a rather significant percentage of the work force.
The fate of rural Nevada is not dire, thankfully. There are signs of economic diversification, and ranching and tourism and farming continue to contribute to the economy. Moreover, Nevada's rural communities consist of survivors—people who always keep their chins up and endure the tough times. And there have been tough times.
Nonetheless, it's my district that must be remembered when considering policies such as royalties and fees on mining. A lot can be learned from studying the effects on our communities by the recent drop in the price of gold—a factor that is out of our control.
Parallels can certainly be drawn between the changing market and changes in royalties and fees. Additional reductions in mining revenue, even those that are seemingly small on paper, will have weighty repercussions on the local businesses, infrastructures, and families of rural Nevada.
I appreciate the Subcommittee's attention to these details, and I thank you again for the opportunity to testify here today on this most important issue. We thank you.
Mr. GIBBONS. That light really works, doesn't it?
Mr. RHOADS. It sure does. Senator O'Neil would really like that. I should grab it up for the last day of the session and give it to him.
[The prepared statement of Mr. Rhoads follows:]
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STATEMENT OF DEAN A. RHOADS, A STATE SENATOR FROM THE STATE OF NEVADA
Good afternoon Mr. Chairman and members of the Subcommittee. I'm Dean Rhoads, Chairman of the Nevada Senate Natural Resources Committee.
Mining is an industry that I have spent many years hearing about from your side of the table. It is a pleasure to be here today on the witness side to share with you some of the observations I've collected over the years.
As a rancher from Tuscarora, Nevada, which is in the northern-most part of the state, I have spent almost all of my entire professional career working near mining and learning about its effects on rural communities. In 1977, when I was elected to the Nevada Assembly, I began considering mining from a policy perspective. My experiences as a legislator have brought to light the complexities of mining on a state-wide level. In 1985, I was appointed to the interim Public Lands Committee, a committee which I have Chaired since that time. I have also been Chairman of the Senate Natural Resources Committee since 1995.
While mining exists throughout Nevada, it is my Senate district that is the most productive mining region in the state, and arguably the third most productive region in the world. I represent Elko, Lander, Humboldt and Pershing Counties, and half of Eureka County.
The effects that mining has had on my district over the years has been profoundly positive at times and very poor at others due primarily to market fluctuations. The simple fact that the value of Nevada's primary ores—gold, silver, and copper—are established on the open market, economic fluctuations—sometimes severe—are felt throughout the rural communities that I represent.
These counties depend on tax revenues from the Net Proceeds of Mines. Even with the current depressed market, Net Proceeds of Mines constitutes between 20 percent to—in the case of Eureka County—50 percent of the rural counties assessed valuation. In contrast, Net Proceeds of Mines in Clark County is only $8 million of the county's total $26 billion in assessed valuation.
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Additionally, there have been roughly 1,500 lay-offs over the past year and a half throughout Nevada; yet, these laid-off workers come primarily from rural Nevada, representing a relatively significant percentage of the work force.
The fate of rural Nevada is not dire, thankfully. There are signs of economic diversification, and ranching and farming continue to contribute to the economy. Moreover, Nevada's rural communities consist of survivors—people who always keep their chins up and endure the tough times. And there have been tough times.
Nonetheless, it is my district that must be remembered when considering policies such as royalties and fees on mining. A lot can be learned from studying the effects on our communities by the recent drop in the price of gold—a factor that is out of our control. Parallels can certainly be drawn between the changing market and changes in royalties and fees. Additional reductions in mining revenue, even those that are seemingly small on paper, will have weighty repercussions on the local businesses, infrastructures, and families of rural Nevada. I appreciate the Subcommittee's attention to these details.
Thank you, again, for the opportunity to testify here today on this important issue, which is critical to the livelihood of rural Nevada.
Mr. GIBBONS. Well, both of you, thank you for your time here today, and Senator Rhoads, let me just begin with you because you were mentioning about rural life, rural lifestyle and impact. And there are some, but particularly the opposition to the mining industry, who claim that the development of tourism can replace the loss of the jobs in mining industry and the economic base or other resource-dependent jobs in our rural communities.
As a legislator from rural Nevada, can you comment on this idea of where you see tourism supplanting the loss of jobs and the quality of the lifestyle, where, as Ms. Soberinsky stated, the average salary is about $50,000 for someone in the mining industry?
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Can you just give us your opinion and your perspective.
Mr. RHOADS. I think as a rural legislator, one of the big issues in this session of the legislature is how are these rural counties going to survive with their hospitals deteriorating, with their schools—they do not have enough tax base to generate any revenue. As far as any economic development that would create tourism, they don't have enough private land to put a decent tourism attraction on.
We're working in these last 2 weeks, addressing the rural counties is going to be one of the major issues we come up with; and I think for the first time in Nevada history, or at least the first time since I have been in the Nevada legislature—and that's 22 years—you're going to see the State actually participate in some kind of funding mechanism to get these rural counties back into decent financial shape.
And most of it has been caused, in a lot of the rural counties, because of the declining mining industry, thanks to the Federal Government. So that is a factor.
Mr. GIBBONS. Well, I know, Senator Rhoads, because of your action and your ideas, many of us in Congress, Senator Reid and myself, have instituted what we call the Northern Nevada Public Lands Bill, which we have introduced, which will sort of assist some of these poor counties, both in their need to grow, need to expand, in some of the communities, as well as a resource or revenue source for some of these very important needs, like education, health care and maintenance of highways, et cetera.
So I applaud you for your efforts in looking for those solutions as well.
Ms. Soberinsky, for the record I read along with you in your statement, and I do want to correct one thing: I believe you stated, and maybe it was a misstatement, that the bonds held by Nevada were $50 million. In your record of testimony you said $500 million.
Which is correct? It's on page 2——
Ms. SOBERINSKY. Five hundred million, from my information.
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Mr. GIBBONS. Okay. And Ms. Soberinsky, the Department of the Interior has maintained that their Draft Proposal 3809 regulations were developed in cooperation with the States. Since Nevada may well be one of the most important mining states in the Union, one would assume, of course, that they had solicited a great deal of input from the State of Nevada; but in your testimony, you have indicated otherwise.
How would you characterize the Interior Department's efforts to seek the State of Nevada's input into their Draft 3809 regulations?
Ms. SOBERINSKY. Mr. Chairman, as you know, we're a new administration, however I've spoken to various State agencies, including Pete Morris at the Department of Conservation and Natural Resources, and have been told that there was relatively no solicitation from the Department of the Interior on our concerns, Nevada's concerns in particular, but on the draft regulations as a whole, and that our input was largely ignored and not taken into consideration at all.
Mr. GIBBONS. Now, would you mind submitting to the Committee for the record, a record of or description of any meetings, or your suggestions that came from the State of Nevada with regard to the proposed 3809 regulations so that we can incorporate that into this record?
Ms. SOBERINSKY. Absolutely. We would be happy to do that.
[The information follows:]
Mr. GIBBONS. Let me explain for those of you in the audience, the gentlemen that are sitting up here beside me are not Congressmen. They are staff. Jack Victory from Fallon over here is my legislative director and works with me in Washington, DC.
John—I forgot your last name, I'm sorry——
Mr. RISHEL. Rishel.
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Mr. GIBBONS. [continuing] Rishel, is the staff member from the Committee. And Doug Fuller is the staff legal counsel for the Resource Committee, and, of course, when I forget to do something, they'll hand me a note. Let me say that for both of you, maybe we can get one final question and then be pleased to let you resume your busy lives.
If I were to go back to Congress and give them one statement or summary about Nevada mining, what should I tell them?
Ms. SOBERINSKY. This is actually—I was going to add on to Senator Rhoads' comments earlier when you had asked about tourism replacing the mining industry. I'd say most importantly, I think sometimes what the Federal Government forgets is that the mining industry and the people that make up the mining industry are integral parts of the communities that they live in.
They are the first ones there with scholarships when needed; they're the first ones there when there is a health care crises. They are the first ones there when there is a family in their community that needs something.
They are not just this monolithic industry that mines gold out of the ground and takes all its profits and runs. They significantly contribute to the livelihood of each of those communities, and I think that that is something that the Federal Government needs to take into consideration in dealing with this issue.
Mr. GIBBONS. I'm not her straight man.
Mr. RHOADS. I would say, Congressman, that we should tell them that the people that are the closest to the ground are the ones that can make the wisest decisions, and we live there and we're going to come back there. And we're going to take care of that ground much better than somebody from Maryland or Pennsylvania, or Arkansas. I have been telling them that for 25 years back there, and sometimes we gain a little, and a lot of times we lose, but thanks to Congressmen like you and others, I think that there's a little bit of light at the end of the tunnel now and we might be getting our voices heard, so we appreciate that.
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Mr. GIBBONS. Well, thank you. We're happy to have both of you here today. Thank you for your very helpful testimony.
Again, we'll excuse you, and appreciate your follow-up with any additional testimony or documentation that you have.
With that, let me call our third panel up, Glenn Miller, Cochair Mining Committee, Toiyabe Chapter, Sierra Club, Reno, Nevada; Tom Myers, Director, Great Basin Mine Watch, Reno, Nevada; Leo Drozdoff, Chief, Bureau of Mining Regulation and Reclamation, Nevada Division of Environmental Protection, Carson City, Nevada.
Gentlemen.
[Witnesses sworn.]
Mr. GIBBONS. Welcome to each of you. As you have heard, your full written testimony will be submitted for the record. You're free to paraphrase and summarize in any way you see fit.
The lights will come on for you, each one, to give you a certain time frame within which to discuss your points.
Mr. GIBBONS. With that, Professor Miller, we'll turn to you first.
STATEMENT OF GLENN C. MILLER, COCHAIR, MINING COMMITTEE, TOIYABE CHAPTER, SIERRA CLUB, RENO, NEVADA
Mr. MILLER. Thank you. I appreciate the opportunity to make some brief comments, and I appreciate your willingness to hold this hearing.
I think all the speakers before us have made the comment, which is very true that the industry is very much depressed right now because of a severe depression in gold prices.
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When gold was up at $400 an ounce, I think everybody was happier. It's a lot easier to talk to industry when they have a lot of money, about environmental issues, and it's more difficult when they don't have as much profit margin present.
But the issues that I guess I'd like to make is that even though the depression is there in prices, and profitability is not there, the environmental, risk of the environmental costs remain about the same, and I am very concerned that the funds to insure that the mines are mining in an environmentally responsible manner be retained.
There is an issue of bankruptcies in Nevada. Now, the numbers, I'm not completely sure about. They change on a fairly frequent basis, but there are over 13 mining sites that have gone into bankruptcy in recent years, and some of these operations are major ones.
The Arimetco's Paradise Peak and the Yerington copper mine. Those are ones where the bonding was severely problematic. Part of it was a corporate bond that is no longer, at least, accessible at present. Pegasus' large mine, Florida Canyon; and Alta Gold is now in bankruptcy. They may come out of bankruptcy; but they have Olinghouse mine just above the Pyramid Lake reservation, plus two other mines in Nevada.
While bonds are available for these mines under Nevada regulations—I was involved in establishing both the legislation that established reclamation law, which, although it was debated very highly in 1989—I remember having shouting matches in the legislature, during that time—whether that was a consensus process, I don't know, but the way legislation goes, it did move forward.
That, we agreed would not bond for fluid costs. Now, probably I think one of the largest emerging problems from mining and environmental issues have to do with how to handle fluids that come out of the waste rock dumps, fluids that come out of heaps, and pit lakes.
There is no authority, and in fact there is specifically an inability to bond for those specific units on major mines. And those are probably some of the largest environmental problems with largest costs that ultimately may be incurred.
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One of the mines, Paradise Peak, half of the bond was held as a corporate guarantee, may come back but it's problematic. We have to get in line with other of the debtors from that mine.
This now has a tailings impoundment that you can see when it blows, like it has blown for the last few days, you can see it from 10 miles away, the tailings impoundment dust, or dust which causes—pretty reactive materials can be seen 10 miles away. It has a pit lake that the last time I saw any gauge on it, was going sour, going acidic, there was a tremendous amount of physical risk from that site also because of the very high instability in the wall rock.
Who's going to pay for this? I mean, this is not a trickle cost. This will be many millions of dollars. And I guess that I would argue that a royalty fee, should it be established, should be dedicated to paying for those mines that go under that are not sufficiently bonded.
Three quick points here: I want to provide a brief overview of three generic problems that are becoming increasingly prevalent in Nevada.
Pit lakes: In the next 30 years, there will very likely be more water in pit lakes than all the other man made reservoirs in Nevada, excluding, of course, Lake Mead. And I don't think anyone argues that point at all.
It's also my belief that the water quality in these pit lakes will not meet the majority of uses that include agricultural, either irrigation or stock watering, certainly not domestic water quality uses, so that water that will be in those pit lakes will largely be unavailable for ranching, for agriculture or for domestic use.
At least one of the pit lakes in Nevada contains constituents that are really severely problematic to wildlife. The two largest man-made lakes in Nevada will be pit lakes and will contain a total of 1 million acre feet of water.
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It's a long term commitment that we are doing right now. We're committing long term resources for the future.
The second one is discharge from precious metals heaps. This an issue I don't think anybody felt would be a major problem. It's now becoming apparent that a large number of heaps in Nevada will drain following snow and rain infiltration and this will be over many, many decades.
Even if you get one furlong of water through a pit, through a heap, with the rainfall in it Nevada will require on the order of 20, 30, 40 and beyond decades. So it's a problem that is effectively permanent, and how we a handle that water is not clear at all.
I think Leo Drozdoff may have some comments about that.
Finally, discharge from waste rock dumps: As in other States, drainage from waste rock dumps is a problem. A problematic mine is the Big Springs Mine, which was a model mine. I appeared on a video in support that mine. Now it has sulfate concentrations coming up; some pH declines that are very slight, with some indication that may be becoming an acid site. At the very least, it's causing significant problems for the north fork of the Humboldt.
Somebody is going to pay for this. Somebody is going to pay. Right now the BLM is getting funds out of appropriations to pay—for some of this, so it's either going to be the taxpayers, or I would argue that a good burden of that should be on the industry that has and will continue to gain a profit from those activities. Thank you.
Mr. GIBBONS. Thank you.
[The prepared statement of Mr. Miller follows:]
STATEMENT OF GLENN C. MILLER, CO-CHAIR OF THE MINING COMMITTEE OF THE TOIYABE CHAPTER OF THE SIERRA CLUB
My name is Glenn C. Miller, and I reside at 581 Creighton Way, Reno NV. I have been active in the Toiyabe Chapter of the Sierra Club for over 20 years on the subject of mining on public lands. I have observed the mining industry in Nevada grow nearly ten-fold during that time, from less than $400 million per year in 1980 to over $3 billion in 1997. This industry has undergone dramatic changes during that time, and I have followed the development of new state and Federal regulations, and observed changes in the mining industry in their response to regulations.
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In many ways, gold mining in Nevada is less expensive and offers better operational characteristics than are present in other states that have higher rainfall. These features, as well as a friendly regulatory attitude towards mining, have allowed Nevada to become the nation's largest producer of gold and silver. When gold was near $400 per ounce, the industry was very profitable; at $280 per ounce, the industry is severely stressed, except perhaps for the very lowest cost producers. Even in these times of financial stress, the environment still requires just as much protection as when the mining industry was much more profitable. Protecting the environment requires sufficient funding to plan, permit, regulate and close these mines. To reduce funding now when mine closure is becoming an increasing concern is very short sighted.
I wish to make four simple points regarding the fees charged for mining claims and a potential royalty, which would help to pay for some of the costs associated with mining.
1. Even though the profitability of mining may have decreased, the costs for regulating mining remain, and may be increasing due to the increased need for careful regulation during closure of mines. The gold mining boom that began in the early 1980's utilized new techniques for mining. This very large-scale mining has created new environmental issues that have not previously been considered and closure problems are now becoming apparent. These issues are discussed below. At any rate, the need for increased funding for the Federal and state regulatory agencies is apparent. Unless this funding comes from the mining industry, it will probably need to come from the general fund. Thus, retention of Federal and state fees on claims is critically important to retain, as are the current permit fees required by the State of Nevada.
2. Bankruptcies of mining companies are becoming a common occurrence in Nevada. Companies which operated or owned over 13 mining sites have gone into bankruptcy in recent years in Nevada. Some of those operations are major mines, including Arimetco (Paradise Peak and the Yerington copper mine), Pegasus