Making Gold Miners Pay

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Larry Mayer / Billings Gazette / AP

The Stillwater Mining Company's operation in Nye, Montana.

"Thanks, mountain!" says the grizzled old prospector played by Walter Huston, in the 1948 movie The Treasure of the Sierra Madre, after he and his young partners erase evidence of their digging before heading back to civilization, burros laden with gold dust.

Huston's benevolent gesture was a sentiment decades ahead of its time. Today, gold and other precious-metal mining companies are extracting bounties of ore, leaving behind scarred mountainsides, toxic acid-rock runoffs and waste-rock dumps — and although much of the damage is on public land, the mining operations, most of which are multinationals, are not required to pay royalties on precious-metals production, and many escape liability for environmental restoration.

That tradition may be about to change. Last week, as the price of gold hit a 28-year high and platinum prices set records, a new bill was being debated by the House Natural Resources Committee, which could force the mines to pay up. For 135 years, the mines have taken wealth out of the public domain under the protection of the General Mining Law — a let-'er-rip relic of the wild frontier past that allows mines to stake claims on almost any federal land. Since the law's enactment in 1872, the U.S. government has given away more than $245 billion in mineral reserves through patenting or royalty-free mining, says Rep. Nick Rahall, the West Virginia Democrat who is behind the new bill. Compare that, he says, to the $35 billion the Treasury has reaped from coal, oil and gas produced on federal lands between 1994 and 2001 alone. "So with that scenario," says Rahall, "we are indeed Uncle Sucker."

Rahall's bill would require companies to make royalty payments on "net-smelter" profits from ore mined off federal claims. Two-thirds of those collections would go toward remediation of the $32 billion in environmental mining damage already incurred in the U.S., and one-third to help local communities adversely affected by mining operations. "We're trying to put some fair return to the American taxpayer for the use of their land," says Rahall, the new chairman of the House Interior Subcommittee. "Whether it's coal or gold mining, there are social and economic impacts that are just the same, which is why we ought to be treating all these extractive industries the same."

Though his original bill called for an 8% royalty (in contrast, companies that lease federal lands to produce crude oil, natural gas and surface-mined coal pay the government a royalty of 12.5% of the current market value of the commodity), in a recent amendment, Rahall suggested restricting the fee to new mines, and exempting existing mining operations — a move that frustrated environmental groups. After a committee vote taken last Thursday, the bill would instead oblige existing mines to pay lower royalties of 4%; new mines, 8%. "We were disappointed," said Lauren Pagel, legislative advisor with Earthworks, a nonprofit dedicated to reforming the mining law. "We're going to fight to get an amendment onto the House floor for an 8% royalty on existing mines. The royalty is needed to clean up abandoned mines. With no royalty, there will be no cleanup money."

Indeed, in Montana's Little Rockies, a gold mining operation that was abandoned in 1997 after 20 years of cyanide leaching — a method of dissolving gold from ore rocks — is still polluting the area and costing millions in public funds to monitor and treat groundwater. Pegasus Gold, the Canadian mine operator, which has since filed for bankruptcy, paid no royalties on the gold it extracted from the area, and now the Ft. Belknap Tribes of Montana, whose reservations adjoin the Little Rockies mining district, says its surface waters are showing unacceptable levels of iron, arsenic, zinc and nickel. "Our biggest fear is that the [U.S. Bureau of Land Management] and the state will not have to provide enough money to run ... water-treatment plants after August 2008," says Dean Stiffarm, environmental liaison for the tribes. "There will be only enough funding to run them six months a year."

The metals-mining industry is wary even of Rahall's amended bill, saying the fees would still be either exorbitant or unfair. "An 8% royalty for prospective mines ... would be the highest in the world. For existing mines, business plans were undertaken without figuring in paying a 4% royalty — that would be unacceptable to us," says National Mining Association spokesman Luke Popovich. "The World Bank has already said for countries seeking to have a sustainable mining industry that a gross royalty is confiscatory. If we're going to have a royalty fine, but let's put it where it's fair."

But there are some in the industry who think the royalty will actually be a boon for business. Gold mining's biggest market, the jewelry retailers, support Rahall's bill saying that environmental responsibility is what more and more of its customers are looking for: at least 80% of gold consumed goes to the superfluous bling of human adornment, and some of those customers are feeling ethical pangs.

Tiffany and Co. CEO Michael J. Kowalski early last year signed onto the "No Dirty Gold" campaign launched by the mining-reform advocate Earthworks and has drawn most of the large retailers into supporting Rahall's reform effort. The last thing image-conscious companies like Tiffany want is to be linked to controversies such as that over conflict diamonds, portrayed in the movie Blood Diamond, nor do they want to be seen as callous parties to mining disasters. "Our customers were anxious to be assured that the metals and gemstones used in Tiffany products were extracted and processed in socially and environmentally responsible ways," says Kowalski. "We come to this, not as conservationists or environmentalists, but simply as business people who really are responding to market forces. So this is not about opposing mining; this is about supporting responsible mining."

That's a cause Rahall has been trying to set in motion for 20 years. The House Natural Resources Committee made its final amendments today, and the bill is now on its way to the House for a vote. If passed intact, Rahall's bill would better protect wildlife and water sources from mining threats, in addition to requiring mining companies to pay royalties on metals mined on federal lands. Perhaps in this current eco-conscious era, the bill may finally get the green light.