Congressional Testimony on the U.S. Mining Act of 1872

By John Dobra, Ph.D.
  • Thursday, May 20, 1993

Possible changes made to the U.S. Mining Act of 1872 -- a statue that has encouraged prospecting, development and extraction of minerals in the public domain for more than 120 years -- would introduce an 8% gross proceeds royalty on hard-rook minerals extracted from Federal land. The Clinton budget proposes a 12.5% royalty.

The short term effect regarding the proposed changes would exert only a modest effect on mining companies' earnings in the 1994-95 period. With only a few exceptions, the major U.S. gold and copper mines operate on land that is patented -- or otherwise non-Federal. Beyond 1995, however, the impact of a royalty and other provisions would be more severe.

Mid-cost mines, which include 16 mines, expected to produce 38.8 million ounces, or over one~half of national production from 1992 to 2000, are put into jeopardy by this gross royalty proposal. This group's minimum required sales price is currently $340 per ounce without gross royalty which, with the benefit of forward sales, allows them to break even or do so slightly better at current prices. With the gross royalty, this group's minimum required sales price rises $48 to $388 per ounce.

Using three criteria, (production costs, reserves and land status), the list of 38 operating mines in the U.S. for which we have long run operating data was reduced to a list of 20 mines expected to still be in operation in the year 2000.

This legislation will have its greatest impact on American working people who drive trucks, operate shovels and maintain equipment. The professional staffs of these companies will be less affected since they will be developing, designing and overseeing operations in other parts of the world. Hence, it will be the blue-collar worker, often a union member, who will bear the burden of this legislation.

If a gross royalty is imposed, total U.S. gold output is expected to decline by 23.5 percent and a similar decline is expected in Nevada. A somewhat higher decline in production from public lands is expected: 32.3 percent nationally, and 29.5 percent in Nevada.

The gross royalty will result in the "wasting" of a significant proportion of U.S. precious metals resources. This "wasting" will occur because in the face of higher production costs resulting from the gross royalty, producers will raise their cut-off grades, leaving millions of ounces of lower grade material in the ground.

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