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Nevada and Alaska State Royalties Fail as Federal Model

October 2, Washington, D.C. — New research released today finds that the mining royalty methodology used by Nevada and Alaska, if adopted by the federal government, would neither pay taxpayers a fair return nor adequately fund the $50 billion abandoned mine cleanup bill facing all Americans. Published by the mining and energy watchdog group EARTHWORKS, A Hardrock Royalty: case studies and industry norms, is being released the same day the Energy and Minerals Subcommittee of the House Natural Resources Committee hears testimony regarding the royalty provisions of 1872 Mining Law reform.

Public statements by representatives of the mining industry, affected states, conservation organizations, business leaders such as jewelers and sportsmen s groups indicate that all parties in the debate agree that mining law reform must include a provision to require that mining companies compensate the federal government for extracting publicly-owned minerals. But they disagree on how a royalty should be levied on the industry. Under current law, mining companies pay no royalty to the taxpayer for valuable metals like gold, silver, copper and uranium. A leading mining industry trade association has been advocating adoption of the Nevada and Alaska model federally – which imposes a royalty only on profits from a mine.

A Hardrock Royalty: case studies and industry norms demonstrates a net profits royalty would result in a return to taxpayers of pennies on the dollar for precious minerals like gold and copper mined on public land,” said Alan Septoff, Research Director of EARTHWORKS and author of the white paper. “While at the same time, the companies operating on our public lands typically pay other countries, U.S. states, and private interests a much fairer return. Why do U.S. taxpayers deserve less?”

A Hardrock Royalty found that in Nevada and Alaska, where versions of the net profits royalty is in place, return to the taxpayer suffers because the mining operations are allowed extensive deductions, beyond just processing their ore into a marketable commodity, before paying the royalty. The study found that in the past five years, a $0 royalty was paid in 50% of the potential royalty cases – even in cases where multi-national mining companies showed significant revenues and despite increasing prices for metals. The state of Alaska's net proceeds royalty returned only $1.2 million over the last 10 years, during which time mines operating on state land produced more than $1.2 billion in gold.

The white paper also details that 77% of states charge some form of value-based royalty such as gross or net smelter while 35 of the 47 private royalties reviewed (74%) were also value-based. A 2006 World Bank study found that value-based royalties dominate the international arena as well.

“Meaningful reform of the 1872 Mining Law must contain a royalty that generates enough money to assure that abandoned mines are cleaned up to protect public safety and heal contaminated landscapes and waterways,” added Septoff.

HR 2262, the Hardrock Mining and Reclamation Act of 2007, introduced by Chairmen Rahall and Costa, contains an 8% “net smelter” royalty. Other extractive industries, like coal, oil and gas pay an 8% to 16.7% gross royalty on the minerals they on extract from public lands.


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