Mining law rewrite faces uphill battle in Senate

WASHINGTON Wed Jan 23, 2008 12:24pm EST

WASHINGTON (Reuters) - A bill passed by the House of Representatives last year that would impose stiff new royalties on hardrock mining companies will likely be toned down by the Senate, where pro-mining lawmakers hold more sway.

The House in November passed the Hardrock Mining and Reclamation Act of 2007, which would update mining laws that have been in place since 1872 and slap hefty new royalties on gold, silver, copper and other minerals mined on public lands.

If it becomes law, it would be the first major overhaul of the General Mining Law since President Ulysses S. Grant signed it 136 years ago to encourage Western land development.

However, key lawmakers on the Senate Energy Committee want to rewrite the legislation from scratch rather than use the House-passed version as a starting point.

Big mining concerns like Freeport-McMoRan Copper & Gold Inc and Newmont Mining could see royalties they pay to the federal government rise substantially if the House bill becomes law.

The House bill would levy an 8 percent royalty on the gross revenue from new hard-rock mining activities and impose a 4 percent royalty on existing operations.

Harry Reid, Senate majority leader whose home state of Nevada accounts for nearly 90 percent of U.S. gold production, has said he will block the 8 percent royalty assessment on new mining operations.

The Energy Committee will hold a hearing on the legislation on Thursday -- a precursor to the panel writing legislation that would still have to be approved by the full Senate.

"Senator Reid will see to it that no royalties be placed on existing mines," said Jon Summers, Reid's communications director. "In regards to royalties on new mines, that is something that has yet to be worked out."

Nevada production accounts for 87 percent of the total U.S. gold production and is the third-largest producer in the world behind South Africa and Australia.

Rep. Nick Rahall, the West Virginia Democrat who sponsored the House bill, has said reform is needed to end mining companies' ability to buy land for as little as $2.50 an acre, which he says amounts to "fast-food hamburger prices."

The House bill would create a fund to clean up tons of mine waste at about 500,000 abandoned mines, which can leak cyanide, mercury and other toxic chemicals into groundwater supplies. It would also give the U.S. Interior Department authority to block mining operations that endanger water quality.

The top members of the Senate Energy Committee -- Chairman Jeff Bingaman and ranking Republican Pete Domenici -- both hail from New Mexico, a big U.S. uranium mining state.

Both lawmakers want to start from scratch rather than accept the House proposal as starting point.

"Bingaman and Domenici have said from the get-go that they intend to write their own bill -- start with a clean sheet of paper," a Bingaman spokesman said.

Lawmakers from the West's heavy mining states such as Alaska and Nevada warned that the bill could shut down the industry and endanger about 170,000 jobs.

The House bill would impose the highest royalty rates in the world on hardrock mining operations and virtually halt any major U.S. expansions, said Luke Popovich, spokesman for the National Mining Association.

Earthworks, a conservation group that has called the current law a dinosaur, says prospects are good for a bill this year even if the House legislation is rewritten substantially.

"We're hopeful that all the senators on the committee can craft a bill that protects communities and the environment and taxpayers," said Lauren Pagel, policy director at Earthworks.

(Editing by Russell Blinch and Matthew Lewis)

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