Report: Mineral royalties untapped

US doesn't know how much companies make off public lands
2012-12-13T00:00:00Z 2014-07-15T17:49:56Z Report: Mineral royalties untappedTony Davis Arizona Daily Star Arizona Daily Star
December 13, 2012 12:00 am  • 

The dollar value of hard-rock minerals mined on federal land by companies is unknown because royalties from the sale of those minerals aren't paid to the federal government, a new report said Wednesday.

Also, companies leasing federal land for oil and natural gas operations often don't pay the full royalties set by federal law, the report from the Government Accountability Office shows. That often happens because of deductions legally available.

The GAO is Congress' investigative arm.

The report said federal agencies don't generally collect sales data from individual mine operators because no royalties exist to require such information. The report was requested by U.S. Rep. Raúl Grijalva of Tucson and U.S. Sen. Tom Udall, of New Mexico. Both are Democrats.

Because no royalties exist, the government gets no money from hard-rock mining operations for metals such as copper and gold on public land beyond the relatively minor claim fees a company must pay annually to keep mining claims active.

A mineral sales value estimate does exist: about $6.41 billion for fiscal year 2010-11, set by the U.S. Department of Interior. That figure is based on a 1993 Interior estimate that 15.3 percent of the total U.S. production value of hard-rock minerals came from federal land, and from 2011 data on nonfuel minerals from the U.S. Geological Survey.

Typically, these minerals come from federal lands owned by the Forest Service and the Bureau of Land Management, including such lands surrounding Tucson.

Anne-Marie Fennell, GAO's natural resources and environment director, called the Interior Department estimate "rough." As a general rule, getting such financial data directly from the source as opposed to trying to estimate such values is a better approach, said Jeff Malcolm, GAO's assistant environment and natural resources director.

A mining industry spokesman, however, asked "what would be the point" of requiring mining companies to provide these sales value data when the feds don't collect royalties from them.

Oil and gas companies and other non-hard-rock federal land mineral lessees, such as coal miners, pay a royalty ranging from 12.5 percent to 18.75 percent, the new report shows.

Grijalva and other congressional Democrats have sought unsuccessfully for many years to impose royalties on companies mining on federal lands.

A bill co-sponsored by Grijalva would set a 12.5 percent royalty rate on the value of the minerals. Mining interests say that rate is higher than in any other country in the world and could cripple future investments. They have not said what rate they find acceptable, but they say they're not against royalties in principle.

Grijalva said in an interview that he plans to introduce legislation requiring hard-rock mining companies to disclose the net worth of minerals they extract from public land. He sees that as a step toward a royalty program.

"This report points out the obvious - we don't value minerals extracted from public lands. All because of the 1872 Mining Law, there is no royalty," said Grijalva, referring to the 140-year-old law passed to encourage mining companies to enter federal land.

Luke Popovich, a National Mining Association spokesman, said he doesn't know that the association would oppose such disclosures, but "I just think what would be the point of requiring further paperwork and reporting requirement from an industry that already pays taxes."

"I think there are obvious reasons why we cannot account for value of metals on public land. No federal agencies are required to keep track of these. There's no reason to. There's no royalty paid on them," Popovich said.

Grijalva countered, "We're in the middle of this fiscal challenge ... we have to redirect revenues, we have public lands closing, less visitor hours, less maintenance and less hiring of researchers. ... Well, now we know we've been leaving a huge pot of money on the table that could change all that."

Udall said in a news release, "This report confirms what we've been saying all along - that we need to reform the mining law of 1872.

"Hard-rock minerals are natural resources that belong to the American people, and we need to make sure we are getting the best return on what should be an investment - not a giveaway."

But there's a difference between the oil and gas and the mining industries, Popovich said. Oil and natural gas removed from federal lands can be sold immediately, but hard-rock minerals need expensive processing once they're out of the ground, he said.

"Just because oil and gas have been paying royalties on federal lands, it doesn't mean that therefore hard-rock mining should be paying royalties," Popovich said.

On oil and natural gas, the GAO study found that annual revenue to the government from royalties paid on all such leasable materials on federal land was $11.3 billion in 2010 and $11.4 billion in 2011. The value of all sales on the open market of oil, natural gas and other minerals with federal leases was $92.3 billion in 2010 and $98.6 billion in 2011.

After deductions are taken into account for transportation and processing costs for the oil companies, the "effective royalty rates" for oil and natural gas lessees ranged from 7.82 percent to 16.23 percent of the total sales values, GAO said.

"The full royalty amount is hardly ever paid," Grijalva said. "There's too much depreciation."

Officials of the American Petroleum Institute declined to comment on the report or Grijalva's statement.

But the bottom line is that royalties are always legally paid at the full rate specified in oil and natural- gas leases, and the deductions are claimed at the time the company makes its payments, said Emily Kennedy, a policy adviser for the institute.

"Deductions are calculated like taxes. The companies figure them out and they pay the royalty, and the (government) audits their reports to make sure the deductions are valid," Kennedy said.

On StarNet: Read more environment-related articles at azstarnet.com/news/science/environment

Contact reporter Tony Davis at tdavis@azstarnet.com or 806-7746.

Copyright 2014 Arizona Daily Star. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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