Old Law Gives Miners the Gold, U.S. the Dross

The state flag fluttering above the Pine Tree Restaurant in this remote town near Yellowstone National Park displays Montana’s promise to miners: “Oro y Plata”--Spanish for “Gold and Silver.”

Across the street, that promise has produced a less savory combination of metals. A lethal mixture of copper, lead, chromium and iron--leaching from a waste heap left by an old gold mine built on federally owned land--has turned once-pure Soda Butte Creek into a poisonous red ribbon that can sustain almost no life for three or four miles beyond Cooke City.

As far as miners are concerned, the flag’s promise has been kept. But while the miners have gotten the gold and silver, many in Cooke City contend that their city and U.S. taxpayers have gotten the shaft.

Forty miles to the north, for example, the Stillwater Mine could yield a pair of giant corporations as much as $30 billion of platinum, palladium and silver. But although the land where these treasures have been found is almost entirely owned by the federal government, the U.S. Treasury will probably not receive so much as a silver dollar in royalties.

Both the pollution in Soda Butte Creek and the revenue stream from the Stillwater Mine are legacies of a federal law signed by President Ulysses S. Grant in 1872 and left largely intact. By promising miners the fruits of their prospecting, the law was intended to help settle the West and develop the nation’s wealth. But it has left the federal government with little more than the pollution that the mines generate.

Interior Secretary Bruce Babbitt kicked off the Clinton Administration’s campaign for mining reform last year when, with a disgusted look, he publicly signed documents giving a Canadian-owned mining company the ownership rights to a parcel of federal land containing one of the world’s richest veins of gold--as much as $8 billion worth--in return for a payment of only $9,000 to the U.S. Treasury.

“Many mining companies . . . are ripping off the American public fair and square,” Babbitt told reporters at the time. “It (the 1872 law) ought to be changed.”

The House has already approved a sweeping mining reform bill. Passed in November, 316 to 108, the bill exacts stiff royalties from mines on federal lands, uses the revenue to establish a cleanup fund for abandoned mines and sets strict federal environmental standards for the operation and closure of mines.

But the mining industry mounted a counter-campaign that resulted in Senate passage of a much weaker bill. That legislation, sponsored by Sen. Larry E. Craig (R-Ida.), imposes much smaller royalties on miners and includes none of the environmental provisions of the House bill.

The outcome will be determined by a House-Senate conference committee. Babbitt, who points out that the industry is now at least willing to discuss reform, hopes that a new era is at hand. “I’m optimistic this time,” he said.

For Cooke City and many other U.S. communities, change may well come too late. Under the 1872 law, about 400,000 mines have been excavated and abandoned on federal lands across the country.

Environmental Protection Agency chief Carol Browner said “a significant number” of mines leach cyanide, arsenic, cadmium and lead into nearby streams, lakes and ground water. About 3 million acres of federal land--an area the size of Connecticut--have been sold to private mining companies for $2.50 to $5 an acre.

More than 50 abandoned mining areas have been placed on the government’s Superfund list of toxic waste sites. They include the giant Summitville Gold Mine in Colorado, which in 1992 spilled cyanide and acid-laced runoff into the Alamosa River, killing aquatic life for 17 miles downstream. The Canadian owner, Galactic Resources Ltd., declared bankruptcy, leaving taxpayers with a cleanup bill estimated at $60 million.

In all, U.S. taxpayers are expected to foot bills of $33 billion to $77 billion for the cleanup of Summitville and other mines on federal lands, according to estimates by the Mineral Policy Center, a Washington-based mining industry watchdog and a key player in the latest bid for reform.

Meanwhile, mining companies--many of them foreign-owned--are scooping up $1.2 billion worth of minerals from federal lands annually, according to the General Accounting Office. They paid “not one thin dime” in royalties to American taxpayers, according to Sen. Dale Bumpers (D-Ark.), an advocate of reforming the law.

“The 1872 law heaps fiscal injury upon environmental insult,” said Philip Hocker, director of the Mineral Policy Center. “It has got to go.”

The public seems to agree. A 1990 poll conducted for the American Mining Congress, the industry’s principal professional association, found that eight in 10 respondents said they believe the mining industry “should have to restore federal land and pay royalties to the government just like the oil and coal industries do.”

Such a response, said an internal American Mining Congress strategy document, “provides the most concrete evidence that the industry should not conduct the mining law battle in public view.”

In recent months, however, the mining industry has gone on the offensive to counter perceptions that it wants to block reform. “We are willing to pay our fair share, and we’ve been at the table ready to resolve this debate,” the presidents of four major mining companies wrote last month in the Denver Post. “We support change. However, we hope that change doesn’t kill the gold mining industry in this country.”

But within days of signing that letter, the president of Echo Bay Mines was taking Babbitt to court in an effort to win ownership rights to 660 acres of federal land--at a cost of $3,305--under the terms of the 1872 law. An angry Babbitt called the lawsuit “a blatant attempt to exempt themselves from the environmental and regulatory provisions that will come out of mining reform” by “those who claim they want reform.”

The mining industry has much to lose. The 1872 law established mining as “the highest use” for federal lands, a status that has given Interior little latitude to deny applications for rights to mine the nation’s landholdings.

The Treasury receives revenues from the payrolls and profits that mining companies make from their U.S. operations, but nothing more. Oil companies pay the government a direct royalty of 12.5% of the value of the goods they extract from federal land, and coal mining companies pay 8%. But under the 1872 law, hard-rock mining companies, whether foreign- or American-owned, pay no direct royalties for the use of the federal lands.

“You get indignant,” said Rep. George Miller (D-Martinez), one of the authors of the House bill. “These companies think they have a God-given right to have the taxpayers support them.”

Miller argued that the political and economic weight of the American West has shifted away from extraction industries such as mining, giving land-reform efforts a powerful impetus.

“The West is filling up with people, and these people want to use the lands, the streams, the open spaces,” Miller said. “But because of industries like mining, the streams are polluted, the ground water is contaminated, the air is dirty. You used to be able to get away with that when no one was out there. But you can’t anymore.”

The House-passed bill abolishes the sale of federal land to private mining firms, a practice that mining firms call crucial to ensuring that they have the rights to mine land on which they have made substantial investments. And in one of its most controversial provisions, it imposes a royalty of 8% of the gross value of hard-rock minerals taken from federal lands.

The bill could also make places such as the area around Cooke City harder to mine by giving the Interior secretary the right to declare some federal lands unsuitable for mining. Less than three miles north of Yellowstone National Park, Cooke City is the proposed site of a mine that promises to yield $600 million in gold and copper.

The giant pond that would hold the mine’s poisonous waste would be built in a prime area traveled by the endangered grizzly bear. If water seeps from the mine, or if the impoundment pond leaks or overflows, critics say they fear that the operation could contaminate waters that flow into Yellowstone Park or into Clarks Fork of the Yellowstone River, a waterway so spectacular that it has won federal protection.

Mining companies argue that the House bill could cost as many as 44,000 jobs in 14 states. They also maintain that it could reduce income to the Treasury by $422 million a year by cutting the mining industry’s earnings and output.

Craig argued that setting royalties any higher would make it unprofitable for mining companies to operate in the United States. In response, the mining industry would take its high technology and its high-wage, blue-collar jobs and pack off to Africa, East Asia, Latin America and the republics of the former Soviet Union, where environmental regulations and the cost of operations are more forgiving.

The charge incenses Babbitt.

“The mining industry has been threatening to go abroad since 1880,” he said. “There is more mining going on, more profits, more productivity now in this country than there were 100 years ago. . . . It’s a rhetorical threat.”

With lawmakers set to begin negotiations on reconciling the House and Senate bills, Babbitt said he would be “packing my proverbial suitcase, heading out to every crossroads in the West, selling my wares.”