Here is part 2 Nick

Major Mining Legislation After the 1872 Mining Law

In 1920, the Mineral Leasing Act removed oil, gas, oil shale, phosphates, sodium, and certain other minerals from the claim-patent system of the 1872 Mining Law and set up a system of leasing in which the federal government retains ownership of the leased lands. Coal, which previously had its own claim-patent law (the 1873 Coal Act), was also included in the 1920 Leasing Act. After 1955, common variety minerals such as sand, stone, gravel, cinders, and pumice were sold under the Materials Act of 1947, as amended. A strong push for an all-leasing system developed during the 1930s and 1940s, but no such legislation was enacted.

As mentioned, acquired federal lands were never subject to the General Mining Law. The Mineral Leasing Act for Acquired Lands of 1947 authorized the leasing of leasable minerals in some acquired federal lands. The Reorganization Plan of 1946 (no.3) and earlier acts authorized the leasing of hardrock minerals on acquired forest lands.

During the 1960s and 1970s, the Multiple Use Sustained Yield Act, Wilderness Act, National Forest Management Act, National Environmental Policy Act (NEPA), and Federal Land Policy Management Act (FLPMA) addressed environmental protection, multiple use, and management of federal land generally. By imposing new requirements on agency actions, and by withdrawing some federal lands from development, these acts have affected mineral development under both the leasing system and the Mining Law claim-patent system. The Mining Law contains no direct environmental controls.

The evolving leasing system and later withdrawals of available lands from hardrock exploration and development diminished the amount of lands under the Mining Law authority. For those hardrock minerals that remain under the Mining Law, however, the claim-patent system is essentially the same as it was when the law was enacted.

Critics argue that the West is now developed and that the 1872 Mining Law is obsolete and inconsistent with other federal natural resource policies. Supporters maintain that the combination of leasing for some resources and a claim-patent system for others works well and should be maintained. The National Mining Association (NMA) states that the "existing law more than adequately meets the four criteria essential to any mineral tenure law": free and open access to explore for minerals on unappropriated public lands, exclusive exploration rights, the right to develop the valuable minerals discovered, and security of tenure.

When oil shale was transferred from the 1872 claim-patent system to the leasing system in the 1920 Mineral Leasing Act, a large number of existing unpatented oil shale claims were continued under the terms of the 1872 Mining Law. In a 1986 court case, a district court reached a controversial finding that these claims were valid and could be patented if claimants had made $500 worth of improvements on the land, even if the statutory $100 annual work requirement had not always been fulfilled.

Legislation to resolve oil shale issues was enacted as part of the Energy Policy Act of 1992 (P.L. 102-486). This law offers general and limited patents based on the status of the application at the time of enactment. Limited patent holders will receive title to the oil shale only and are required to post a reclamation bond or financial guarantee. Patent fees remain $2.50 per acre.

Beginning in FY1995, Congress has enacted (in the Interior appropriations laws) a series of one-year moratoriums on the issuance of mining patents. For FY2000, the Consolidated Appropriations Act (P.L. 106-113, §312) essentially retained the mining patent moratorium contained in previous appropriations laws. The FY2001 Interior and Related Agencies Appropriations Act for FY2001 (P.L. 106-291, §311) also contained a one-year extension of the moratorium on mining patents.

Analysis

Claim-Patent System: Pros and Cons

The right to enter the public domain lands and prospect for and develop minerals is the feature of the claim-patent system that draws the most vigorous support from the mining industry. Modern hardrock mineral exploration requires a continuous effort using vast tracts of land and sophisticated and expensive technology. Industry officials argue that being able to obtain full and clear title to the land enhances a company's ability to bring an economic deposit into production; financing the project, for example, may be more feasible. They contend that restrictions on free access and security of tenure would curtail exploration efforts among large and small mining firms. In their view, the incentive to develop would be lost, long-run costs would increase, and the industry and the country would suffer.

Mining Law critics consider the claim-patent system a giveaway of publicly owned resources because of the absence of royalties and the small charges associated with keeping a claim active and obtaining a patent. They maintain that although such generous terms may have been effective ways to help settle the West and develop minerals, there is no solid evidence that under a different system minerals would not be developed today. They also believe the current system, by conveying title and allowing other uses of patented lands, creates difficult land management problems through the creation of inholdings, and that current law does not provide for adequate protection of the environment.

In the claim-patent system, mineral claims may be held indefinitely without any mineral production. In some instances, claimed or patented land has been used for purposes other than mineral development. Once lands are patented to convey full title to the claimant, the owner can use the lands for a variety of purposes, including non-mineral ones. However, using land under an unpatented mining claim for anything but mineral and associated purposes violates the Mining Law. Critics believe that many claims are held for speculative purposes. However, industry officials argue that a claim may lie idle until market conditions make it profitable to develop the mineral deposit.

Another issue surrounds "discovery" and "prediscovery protection." The law requires that "no location of a mining claim shall be made until the discovery of the mineral within the limits of the claim." If a discovery is made and a valid location established, the claimant has a valid possessory right against all other parties. One purpose of the discovery requirement was to help reduce speculation. However, demonstrating discovery of a valuable mineral deposit may require considerable time and effort on the part of a prospector. The prospector may find indications of a deposit, but demonstrating its value may involve exploration over a large area and drilling and analyses of core samples to define the quality and extent of the mineral. Typically, in practice, the federal government has allowed claims based on general indications that a mineral deposit exists, and required proof of discovery only upon application for a patent unless circumstances warrant full proof sooner, e.g., mineral claims in sensitive areas.

The industry has indicated it wishes to avoid major challenges to the principle of free access and the right to obtain a patent. The industry generally opposes placing hardrock minerals under a leasing system because this would give the federal government discretionary control over development, impose royalty payments, and retain government ownership of surface and/or mineral rights.

Past Amendment Proposals

Proposals to amend the 1872 Mining Law have fallen under the following broad categories:

Modify the claim-patent system to retain the patent feature, but require payment of fair market value for all or part of the value of the land. The Government also would collect some percent of the value of mineral production as royalties.
Convert the claim-patent system to a permitting system, and prohibit further patenting. Advocates of this proposal argue that a permitting system would be effective in achieving a fair market value return to the federal Treasury for public lands. This system would collect royalties and add new environmental standards to mining operations. Mineral industry supporters, on the other hand, contend that the Department of the Interior is already overburdened with the current leasing system and that comprehensive hardrock mining reform would only add to its inefficiency and ultimately increase costs through royalty and rents.
Continue the current claim-patent system, but with some amendments. Proposed changes have included eliminating the distinction between lode and placer claims, imposing a time limit within which claims must be developed, expanding the size of a claim, providing better prediscovery protection, and opening more public lands to mineral exploration.
The Clinton Administration's Call to Eliminate Subsidies

The Mining Law currently allows a claimant to produce minerals without a patent and without paying royalties or rents to the federal Treasury. This can be considered a subsidy because the miner does not pay for a factor of production -- i.e., land and mineral resources. By contrast, royalties are paid to the federal government for oil and gas leasing on federal lands, and non-federal land owners (e.g. private and state owners) typically receive a royalty from those who produce minerals on their lands. Also, if the claimant patents the surface and mineral estate for the $2.50 or $5.00 per acre, this too can be considered a subsidy because the claimant is paying less than fair market value for the surface and mineral estates. Various tax incentives, such as the percentage depletion allowance (a tax deduction for the depletion of a mineral resource) and "expensing" (writing off in the year of expenditure) the costs of exploration and development, have been characterized as subsidies to the industry as well.

Eliminating some of the natural resource subsidies, in the Clinton Administration's view, would have been one way to increase revenues to the Treasury and help ensure a fair return to the taxpayer for the development of public lands. In its FY2001 budget request, the Clinton Administration proposed charging mining companies a 5% fee on net smelter production from hardrock mining on federal lands. The Bush Administration has not made a similar proposal in its FY2002 budget request.

As has been previously noted, the original intention of the Mining Law was to develop the nation's minerals and to develop the West. Proponents of retaining the current system contend that an incentive still is necessary for those who take substantial financial risk to develop a mineral deposit. Mining is a capital-intensive process that often takes years of development before minerals are produced.

Imposing royalties, increasing holding fees, and repealing the percentage depletion allowance would have some impact on domestic hardrock mineral production, but the level of any production decline attributable solely to new fees is difficult to estimate. The mining industry generally has opposed legislation to repeal the percentage depletion allowance. The elimination of some incentives to the industry would come at a time when the West is already developed (an original goal of the law) and mineral/metal demand is relatively good. However, prices are fluctuating, and the mining industry is looking outside the United States for lower-cost deposits. Also, several mineral-producing nations are rewriting their mining laws to attract more U.S. and western investment. Some U.S. deposits are becoming much less competitive with foreign deposits. Any new cost increases in one area, without cost reductions in others, may make U.S. mineral deposits less competitive or uneconomic.

Of the many issues surrounding the Mining Law, at least three are of perennial concern. One is whether the government should receive a fair market return from public domain hardrock mineral dispositions. A second issue is concern about environmental protection, and the third involves withdrawals of federal land from mineral exploration and development.

Fair Market Value

Many believe that the federal government does not receive fair market value for land transfers under the Mining Law. It receives no royalties or rents from mining activities conducted under the law. In addition, the $2.50 and $5.00 per-acre price for clear title to the surface and mineral rights has not changed since the law was enacted. The per-acre price appears to be based on the value of Western farmland and grazing land before the enactment of the law in 1872.

Determination of fair market value of mineral bearing lands is complex because many geologic, engineering, and economic factors must be considered, and fair market value determinations typically are controversial. According to a 1989 report by the General Accounting Office (GAO), the fair market value of mineral-bearing lands is substantially more than the $2.50 and $5.00 per acre that a claimant pays for patenting a claim. GAO estimated that, for 20 patents it reviewed, the federal government had received less than $4,500 since 1970 for lands valued between $13.8 and $47.9 million.

The GAO appraisal method, however, was criticized by the Bureau of Land Management (BLM) in a May 1989 Report to the Secretary of the Interior. The GAO report obtained information on land values from BLM, Forest Service officials, and local real estate brokers. GAO's estimates were based on recent sales of comparable land, not the value of the land at the time claims were patented; much of the land may have had very little value at the time it was claimed or patented. BLM argues that sales of adjacent tracts that either have no mineral development potential or are sold for mineral rights alone cannot be used to establish fair market value of the surface of patented mining claims and that data on comparable sales are rare.

A general indicator of the value of the land is the value of the minerals produced. The Department of the Interior (DOI) estimates the value of hardrock mineral production on federal land at $.99 billion for FY2000, a decrease from an estimated $1.8 billion in FY1993. The decline can be attributed in part to a reduction in the value of mineral production from the federal lands because of acreage conveyed out of federal ownership through patenting, according to a BLM representative.

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