Hardrock Mining Royalty Issues

Executive Summary

As the U.S. Senate contemplates an 8% royalty on mining (bills proposed by Senator Dale Bumpers of West Virginia), Dr. John Dobra, Senior Research Fellow for Nevada Policy Research Institute, was called to testify before the Senate Committee on Mineral Resources Development and Production. Dobra testified on the effects of mining royalties on jobs, profitability and their impact on resources. Dobra criticized the May 16, 1993 Congressional Budget Office testimony for taking a short term perspective on the matter. “As a result of both the gradual “wasting” of current reserves and the disincentive to develop new reserves on public lands, it is very misleading to take current levels of production reduced by a modest factor as in the CBO testimony, and project long term royalty revenues at that level.” In essence, reserves which can be mined at a profit will be significantly reduced between now and the year 2000 from approximately 52 million ounces to approximately 20 million ounces. Production will move to private lands in the U.S. or to foreign countries with more reasonable royalties that are tied to profitability.

In light of this Dr. Dobra made a strong case for royalties related to profitability and the ability to pay. Royalties from mining operators to pay for reclamation programs will generate no net jobs. These funds, if not used to pay royalties, would be used to finance exploration and development; in other words, the creation of wealth not the redistribution of wealth. The way royalties are commonly negotiated with private parties and, in many cases, with foreign governments, a royalty hold is, in effect a partner who shares in the success of an enterprise. This is because royalties are commonly based on the ability to pay or profitability. On general principles, Congress will maximize the return to the Treasury from royalties on hardrock minerals if it follows this example and acts as a partner. Reap the benefits in the good times, but allow the industry to survive the bad.

Download the full study