Hardrock Mining:

Information on State Royalties and Trends in Mineral Imports and Exports

GAO-08-849R: Published: Jul 21, 2008. Publicly Released: Aug 20, 2008.

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Robin M. Nazzaro
(202) 512-6246


Office of Public Affairs
(202) 512-4800

Since the passage of the General Mining Act of 1872, miners have extracted billions of dollars worth of gold, silver, copper, and other hardrock (locatable) minerals from federal lands without having to pay a royalty. Congress is now considering amending the General Mining Act to, among other things, assess a royalty to ensure that the public is compensated for hardrock minerals extracted from federal lands, as more recently enacted laws require for oil, gas, and other minerals. The vast majority of the federal lands where hardrock mining operations occur are in 12 western states, including Alaska (hereafter referred to as the 12 western states). These western states have statutes governing hardrock mining operations on lands in their state. However, unlike the federal government, these states charge royalties that allow them to share in the proceeds from hardrock minerals extracted from state-owned lands. In addition, most of these states charge taxes, such as severance taxes, mine license taxes, or resource excise taxes, on hardrock mining operations that occur on private, state, and federal lands. Although states may use similar names for functional royalties they assess, there can be wide variations in their forms and rates. To aid in the understanding of royalties, including functional royalties, the royalties are grouped as follows: (1) Unit-based is typically assessed as a dollar rate per quantity or weight of mineral produced or extracted, and does not allow for deductions of mining costs; (2) Gross revenue is typically assessed as a percentage of the value of the mineral extracted and does not allow for deductions of mining costs; (3) Net smelter returns is assessed as a percentage of the value of the mineral, but with deductions allowed for costs associated with transporting and processing the mineral; and (4) Net proceeds is assessed as a percentage of the net proceeds (or net profit) of the sale of the mineral with deductions for a broad set of mining costs. Hardrock minerals play an important role in the U.S. economy, contributing to multiple industries, including transportation, defense, aerospace, electronics, energy, agriculture, construction, and health care. The Department of the Interior's (Interior) U.S. Geological Survey (USGS) annually calculates U.S. "net import reliance as a percentage of U.S. apparent consumption" (hereafter referred to as "net import reliance") for nonfuel minerals using production data from annual USGS mineral industry surveys and import and export data from other sources. According to USGS, in recent years the United States has relied heavily on foreign sources for raw and processed minerals, including many hardrock minerals. In this context, Congress asked us to provide information on (1) which types of royalties the 12 western states assess on hardrock mining operations and (2) trends on imports and exports of hardrock minerals. In addition, you asked us to provide data on hardrock mining operations on federal lands that the federal government either does not routinely collect or consistently maintain.

The 12 western states assess multiple types of royalties, including functional royalties, on mining operations, which often differ depending on land ownership and the mineral being extracted; in addition, each royalty can be governed by different sets of exclusions, deductions, and limitations. For example, for private mining operations conducted on federal, state, or private land, Arizona assesses a net proceeds functional royalty of 1.25 percent on gold mining operations, and an additional gross revenue royalty of at least 2 percent for gold mining operations on state lands. In addition, 9 of the 12 states assess different types of royalties for different types of minerals. For example, Wyoming employs three different functional royalties for all lands: (1) net smelter returns for uranium, (2) a different net smelter returns for trona--a mineral used in the production of glass, and (3) gross revenue for all other minerals. Finally, the royalties the states assess often differ in the allowable exclusions, deductions, and limitations. For example, in Colorado, a functional royalty on metallic mining excludes gross incomes below $19 million, whereas in Montana a functional royalty on metallic mining is applied on all mining operations after the first $250,000 of revenue. The actual amount assessed for a particular mine may depend not only on the type of royalty, its rate, and exclusions, but also on such factors as the mineral's processing requirements, mineral markets, mine efficiency, and mine location relative to markets, among other factors. Enclosure II provides information on royalties, including functional royalties, that the 12 western states assess. Based upon USGS data on 15 common hardrock minerals, over the past 32 years, the degree to which the United States has relied on imported minerals to satisfy its domestic consumption has held relatively constant for 4 of those minerals (fluorspar, gypsum, palladium, and platinum); fluctuated for 5 (copper, lead, silver, tungsten, and zinc); increased for 4 (barite, magnesium compounds, magnesium metal, and perlite); and decreased for 2 (gold and nickel.) Moreover, in some years, the United States was a net exporter of some hardrock minerals. Over the period, for example, the United States has (1) consistently relied on imports to provide between 77 percent and 100 percent of its fluorspar needs--a key ingredient in the manufacture of aluminum, gasoline, steel, and uranium fuel; (2) fluctuated in its reliance on imports to meet its need for copper, importing copper in most years and providing net exports in 1975 and 1991; (3) decreased its reliance on imports of nickel from a high of 80 percent in 1978 to a estimated low of 17 percent in 2007; (4) consistently been a net exporter of gold between 1982 and 2003; and (5) been a net exporter of magnesium metal until 1997, when the United States began to import magnesium metal.

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