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Promising mineral rights on federal land for as little as $2.50 an acre, the 1872 hardrock mining law remains one of the last pieces of pioneer laws on the books, requiring neither federal royalties nor environmental protections on the extraction of valuable metals like gold and copper.

Despite its archaic nature, efforts to overhaul the law have failed time and time again. Twice the House Natural Resources Committee has passed legislation to reform the law, but both efforts failed before they produced reform.

Last November, committee Chairman Nick Rahall (D-W.Va.) guided a third piece of reform legislation through a divided House, sending it to the Senate, where past attempts foundered.

It is a balancing act between demands to make the hardrock mining pay royalties like oil and coal while being beholden to more environmental regulations and objections from the industry that says too much reform will kill jobs. So far, nobody has been able to get the scales just right.

Later this week, the Senate Energy and Natural Resources Committee will hold its second hearing in six months on the 1872 law. At the helm are the senators from New Mexico, chairman Jeff Bingaman (D) and ranking member Pete Domenici (R), both of whom have spoken for the need for reform and are preparing to create a Senate version of Rahall's bill.

"I don't think you can't do mining reform without the chair of the pertinent committee," said Lauren Pagel, policy director of Earthworks.

While reforming the 1872 law has the support of the committee's leadership, they will have to find the right answer to difficult questions like how much royalties should be when worldwide metals demand is at an all-time high, and how to effectively protect the environment if reform has a chance in the Senate.

Grant's legacy

When President Ulysses S. Grant first signed the bill, the West was still the frontier, sparsely populated and undeveloped. Settlers and speculators needed encouragement to go to these remote spots of desert that held valuable treasures underneath.

The goal was to draw prospectors to the West. The law permits privatization, or patenting, of public resources for $2.50-$5.00 per acre, a steal even in those times. It made no references or demands for the protection of the environment because at the time there was a greater need to bring people West than for conservation.

While Congress has renewed a temporary moratorium on such land purchases every year since 1994, hardrock mining continues to pay no federal royalties. By comparison, the oil, gas and coal industries pay the federal government gross royalties ranging between 8 and 16 percent.

Some estimates show the government has missed out on more than $245 million in royalties on mineral reserves since the 1872 law was passed.

As early as 1934, authorities and oversight committees argued that the law was outdated and prevented the federal government from protecting the national resources in its trust. In 1979, the arm of Congress now known as the Government Accountability Office issued several reports on abuses of the law by mine companies and land speculators. By 1989, the GAO bluntly called for reform.

Reform advocates say the hardrock mining industry has been on a free ride for long enough, escaping both royalties and accountability for its actions even after mines are closed. The Forest Service and the Bureau of Land Management estimate there are approximately 38,500 abandoned mine sites on National Forest System lands and 65,000 on BLM lands. Of those, about 10 percent may be releasing toxic heavy metals, acidity and radioactivity into various waterways.

The industry argues that existing environmental protections like the Clean Air Act, the Clean Water Act and the National Environmental Policy Act are more than enough. Adding even more regulations, on top of royalties, would cost jobs.

While mining used to be the predominant industry in the West, the growth of other industries like farming, grazing and outdoor recreation have expanded the West's population and the desire to protect its natural resources.

In Crested Butte, Colo., for example, the town's residents have fought for years against a proposal to mine molybdenum on nearby Mount Emmons. Once a major coal mining center, the town is now a world destination for skiing, mountain biking and other outdoor activities.

"The one thing that is going for mining reform this time is: more people in the West," said Dusty Horwitt, a public lands analyst with the Environmental Working Group.

However, the recent increase in metal prices "raises the stakes considerably for Western communities," he said, because mining companies will attempt to develop deposits formerly considered too marginal to develop. Gold broke $900 per ounce for the first time earlier this month, making reform on the 1872 law more urgent than ever, Horwitt says.

Resources vs. industry

Rahall's bill, H.R. 2262, would impose an 8 percent royalty on the gross returns on minerals from new claims and a 4 percent royalty on existing claims filed under the law.

The Congressional Budget Office concluded that H.R. 2262 would generate a total of $160 million over the 2009-2012 period on existing claims and $310 million over the 2009-2017 period. Two-thirds of these funds would go toward cleaning up the tens of thousands of abandoned mines that will cost between $32 billion and $72 billion to reclaim.

The bill also would put an end to the sale of land at 1872 prices and give authorities significantly more control of where hardrock mining can take place, especially in environmentally sensitive lands like national parks.

Since 2003, mining companies have staked more than 2,900 claims within five miles of 11 major Western national parks and monuments, according to an EWG report released last year that used Bureau of Land Management figures.

While environmentalists and House supporters praised the bill as a long-overdue overhaul of the law, western senators fearful of what the bill could do to one of the region's largest industries tried to cool expectations.

Just after the bill passed in November, Bingaman and Domenici said they would "start with a clean slate" and craft their own version of the bill. They stressed the importance of the mining industry to the West and what the House bill could do to those jobs if made law.

Senate Majority Leader Harry Reid (D-Nev.), whose father was a miner and whose son-in-law is a lobbyist for gold-mining giant Newmont, said at the time that the bill "won't stand over here" as written.

Reid said he supported the need for reform, but any Senate version of the bill would need to have a drastically different royalties scheme that does not charge existing mining operations.

New operations are "fair game" for royalties, a spokesman for Reid said. "All options are open at this point" for what kind of royalty there should be.

While supporters fear Reid's influence may ultimately hurt the reform, staff on the Senate Energy and Natural Resources committee see it differently.

"Any time that the leader takes an interest in your legislation is a good thing," said committee spokesman Bill Wicker. "It's a net positive."

The best royalty?

While supporters vary on what are the most important aspects of the Rahall bill, opponents have been united against its royalty provision, making it unlikely that the royalty scheme in the House bill will be in the Senate version.

"I think the percentage is going to be different; the big question is what kind of method they decide on," said Earthwork's Pagel.

During almost all of the hearings and markups in the House leading up to the passage of Rahall's bill and in the previous two Senate hearings, witnesses representing the mining industry have repeatedly spoke out against the royalty provisions, calling them an excessive measure that would be disastrous for the industry.

"You need to work with the existing framework because an 8 percent royalty is a gross injustice," said Russ Fields, head of the Nevada Mining Association, at a House field hearing in Elko, Nev., in August. "It's not fair to mining or the public, because mining has no control over the price of minerals, so it's impossible for mining to pass on the cost of the fee to the customer."

The field hearing was held at Reid's request so Rahall and his supporters could better understand mining's contributions to the economy and national security.

One of the biggest issues under debate is whether existing mines should be required to pay a royalty or whether they should be grandfathered into any reform. Opponents argue that to suddenly start requiring existing hardrock operations to pay royalties would be devastating and would likely shutter many operations.

But a royalty imposed on new mines only would delay any significant royalties for at least a decade.

CBO says that under the House bill's 8 percent royalty provision on new operations, significant amounts of federal royalties will not be generated until after 2017 because the time it takes to explore, develop and produce commercial quantities of minerals.

Some observers say the rhetoric is similar to the previous attempts to reform the law, which started with an aggressive bill in the House, developed into a watered-down bill in the Senate and ultimately failed to become law. In this view, the bills failed in part because the Senate bills always emasculated the House bills, putting more emphasis on business rather than the resources they are meant to protect.

"The Senate bills were much more friendly to the mining industry," said Roger Flynn, an attorney with the Western Mining Action Project. "I don't know if the Senate bill will recognize that balance."

Rahall's bill has already been altered in one significant way. The bill originally mandated an 8 percent royalty on both existing and future mines, but the bill was amended in its House markup to only a 4 percent royalty on existing operations.

But the mining industry and opponents of Rahall's bill want more. During the Senate's first hearing on the 1872 law in September, one witness said that when Congress debates what kind of royalties to impose, it must consider the effects of a gross royalty -- based on the total revenue from the sale of minerals -- and a net royalty, which allows the operator to deduct production costs before the royalty is calculated.

Veteran mining attorney Jim Butler explained to the committee that a net royalty would provide a buffer to an industry that has seen good times and bad by only mandating royalties during good times, while a gross royalty could force producers to cut into employment costs to stay afloat.

Witnesses in the House hearings leading up to the bill's passage said the royalty would be on the highest in the world and would only hurt the industry.

Luke Popovich, spokesman for the National Mining Association, said that supporters of Rahall's efforts "need to look at the real world" and see that the world needs minerals that the United States can provide if not strangled by high royalties.

"A narrow view is you can afford to pay the world's highest royalty," he said. "Another view is, there is a big demand for what the United States has. Let's provide it."

A blank piece of paper

Thursday's hearing had originally been scheduled for mid-December but was postponed as lawmakers rushed to finish work on year-end spending bills before Congress broke for winter recess.

The hearing is expected to tackle many of the same issues covered in previous hearings, but with the State of the Union next week and the release of the president's annual budget proposal next month, committee staff say it's unlikely to see legislation materialize until sometime in the spring.

While the Senate bill is just a blank piece of paper right now, environmental, tribal, farming and sportsman groups in several Western states are already holding public events calling for their senators to support a tough mining law.

EWG's Horwitt said his and other groups are working to ensure as much of the House bill possible gets into the final Senate bill. "We're just trying to get the best bill we can," he said.

Supporters of reform hold high hopes that with both the chairman and the ranking member of the committee in favor of reform, the bill stands a better chance than in the past.

"Senators Bingaman and Domenici can play a lead role in protecting the health of New Mexico's communities, lands, water and wildlife by producing a modern framework for mining that protects taxpayers and the environment," Gregory Greene of the Pew Campaign for Responsible Mining said at an event in New Mexico earlier this month. "We all have a stake in their success."

Schedule: The hearing is scheduled for Thursday, Jan. 24, at 9:30 a.m. in 366 Dirksen.

Witnesses: Henri Bisson, BLM deputy director; Michael Dombeck, Trout Unlimited; William Cobb, National Mining Association; Alan Bernholtz, mayor, Crested Butte, Colo.; Randy Wanamaker, executive director, BBC Human Resources Development Corp., Juneau, Alaska; Deborah Gibbs Tschudy, deputy associate director, Minerals Management Service; James Cress, partner, Holme, Roberts & Owen LLP, Denver; Ryan Alexander, president, Taxpayers for Common Sense; and James Otto, independent consultant, Boulder, Colo.

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