HTML _ 94-438 - Mining Law Reform: The Impact of a Royalty
12-May-1994; Marc Humphries; 12 p.

Abstract: The General Mining Law of 1872 grants free access to individuals and corporations to prospect for minerals on open public lands, and allows them, on discovery, to stake a claim thereby obtaining the rights to the mineral. A claimant may file for a patent application for title (ownership) for surface and mineral rights. If approved, the claimant may purchase the surface and mineral rights at a rate of $2.50 per acre for placer claims and $5.00 per acre for lode claims. The government receives no royalty from production on mining claims. The Mining Law applies to hardrock minerals. The Mining Law was intended to promote settlement and mineral development in the West. Critics argue that the minerals industry is now mature. The location-patent system, they say, is unnecessary and difficult to defend in light of budget deficits and environmental concerns. On the other hand, proponents of the current location-patent system, argue that the security of tenure gained through patenting is a necessary incentive for those who take substantial financial risks to develop mineral deposits. Economic decisions in the mining industry require a long-term approach. Large preproduction costs are incurred before any returns are achieved. After several years of contentious debate, two very different versions of Mining Law reform have reached the conference committee. The four major issues that will need to be resolved by the conferees are: patenting, reclamation, unsuitability reviews and royalties. Bills in both the House and the Senate were considered in 1993 that would generally carry out the Administration's proposal to reduce natural resource ¨subsidies¨ on Federal lands. The House passed its version, but the Senate balked, passing instead a mining industry-supported bill that would retain the patents and impose a much smaller royalty. The differences between these two bills now must be resolved in conference. Economic impact studies of the proposed mining law reform bills were conducted by the Department of the Interior (DOI), the Congressional Budget Office (CBO), Evans Economics, Inc. (EEI), John Dobra/Thomas Harris, and Goldman Sachs. While many provisions of the proposed mining law reform bills were examined, the studies focused primarily on the economic impacts of imposing a royalty on hardrock mining. This report examines the royalty question, which is the most complex economic issue in mining law reform. The royalty rate issue is not likely to prevent a compromise agreement in the conference. The major point of contention may be the unsuitability reviews in the House bill (H.R. 322). Mining Law reform may contribute to reducing exploration activity in the U.S. but, is one of several factors determining exploration activity. Mineral policy ranked third on a list of mineral exploration investment criteria according to a 1989 survey. Exploration is fundamental to the industry's long-term growth strategy. Mineral exploration which costs millions of dollars is carried out over vast tracts of land, and often in more than one country. [read report]

Topics: Mining

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