Paying a Royalty for Mining

In your railing against the mining industry (“Every Mine a Gold Mine,” editorial, May 19), you fail to mention a critical distinction between the royalty schemes proposed in the House mining bill and the Senate’s version. More important than the 8% vs. 2% debate is whether the royalty should be based on the gross or net value of the minerals.

Critics of the industry like to point out that oil and gas companies pay federal royalties, so why don’t mining companies? The fact is, miners have long conceded a willingness to pay a reasonable royalty. And the fairest calculation of the public’s contribution to the value of raw ore is through a net royalty, which is the type of royalty paid by the oil and gas industries.

Oil and gas companies pay a royalty based on the value of their product at the wellhead, when it first emerges from the ground. Miners are simply asking for similar treatment by having their royalty applied at the mine mouth, when the minerals first emerge from the ground in raw ore form, and before any value-added processing occurs.

Oil and gas interests do not pay a royalty based on the price consumers pay at the pump. Why should miners be expected to pay a royalty based on the price of gold bullion--which is what the gross royalty featured in the House bill would require.

Additionally, a net royalty will ensure the maximum extraction of mineral from public lands, which in the long run will be of greater benefit to both the government and the mine operator.

The difference is an exercise in pure economics. The mining industry has historically operated with very thin profit margins. The hard reality is that many mining companies simply cannot afford to pay a gross royalty and would be forced to close down their operations. That means lost jobs, lost wages and lost tax revenues.

The mining community has supported fair and reasonable reform of the mining law for well over a year and continues to support efforts in Congress to accomplish this goal. Unfortunately, Interior Secretary Bruce Babbitt’s cheap grandstanding in signing the Nevada patents was more a publicity stunt than a constructive gesture aimed at achieving balanced reform.

H. M. CONGER, Chairman

Homestake Mining Co.

San Francisco