Levy on gold could be budget windfall, U.S. lawmakers say

Wed Dec 12, 2012 8:49am EST

* Lawmakers want taxpayer stake in mining boom

* No royalties paid or records kept under current rules

* Reform could mean billions in new revenue

By Patrick Rucker

WASHINGTON, Dec 12 (Reuters) - Revising a 19th-century U.S. law that governs the mining of gold and other precious metals could add billions of dollars to federal coffers at a time of tight budgets, according to some Democratic lawmakers and a government study released on Wednesday.

Taxpayers receive no royalties on metals pulled from federal land, and officials drew a blank when they tried to find out how much gold, silver, copper and other valuable metal is sold.

"Federal agencies generally do not collect data from hardrock mine operators," said the Government Accountability Office report, which looked at the market in 2010 and 2011.

But applying a metals levy of 12.5 percent - the benchmark government share for other resources - could deliver hundreds of millions of dollars a year to taxpayers, according to independent studies and U.S. Representative Raul Grijalva, who sought the report and other data from the mining industry.

"As we face these fiscal challenges, these are the pennies that we should pinch," said Grijalva of Arizona, the leading Democrat on the panel that oversees public lands.

Grijalva and Senator Tom Udall of New Mexico, who jointly called for the GAO report, say taxpayers should also benefit from a gold price surge that has boosted the bottom line for miners.

Applying Grijalva's royalty formula on the 1.1 million ounces of yellow metal pulled last year from Goldstrike mine in Nevada, the largest in North America, could have yielded $150 million to taxpayers, according to a Reuters tally of industry data.

Barrick Gold Corp, the mine operator, said only a fraction of Goldstrike is on federal land, and the company's taxes have already quadrupled in the five years of climbing gold prices.

Taxpayers are entitled to a royalty from metal sales nevertheless, lawmakers said.

Western mining power Freeport-McMoRan Copper & Gold has reserves of copper and molybdenum, which is used to toughen steel, that would return about $700 million to taxpayers under Grijalva's proposed formula, according to a Reuters tabulation of company data.

The 1872 mining law that drove prospectors into western states such as California still governs much of the industry.

But this no-royalty law is a costly anachronism when mining giants can stake a claim on federal land for a few dollars an acre, Udall said. The coal, oil and gas industries, by comparison, have no such exemption.

"We are giving our gold and silver for free and don't even know how much we are giving," said Udall, whose father, Stewart, was secretary of the Interior during the 1960s and called mining law reform his great unfinished work.

Lawmakers who have occasionally tried to reform the mining rules have never cleared all the hurdles to pass new laws, as the industry has strong political allies.

Senate Majority Leader Harry Reid, a Democrat, counts on mining support in his home state of Nevada, and lawmakers say it will be difficult to persuade him to take a bite out of the industry.

But lawmakers say they may, in the end, go after the hundreds of millions of dollars in tax breaks the mining industry claims each year, which they see as an easier political gambit than seeking royalties.

"There are a lot of write-offs, and this is an issue we can bring to the coming debate about tax reform," Grijalva said.

Those allowances also benefit the oil and gas industry, the GAO report says, with the federal take on energy exploration running billions of dollars below target.

The offshore oil fields that were supposed to deliver a 12.5 percent royalty to taxpayers brought about 8 percent in 2010 and 2011, according to the report.

One explanation for the shortfall, the report says, is industry allowances for the cost of transporting fuel and incentives meant to encourage some exploration.

"We need to always be looking back and seeing if there is a good reason to continue with exemptions," said Udall. "That's something we're not very good at in government - ending the exemptions when they're no longer needed."

State and local governments often catch a windfall from mining revenue, and Udall said Republican lawmakers from the West might be persuaded to increase the federal take.

"Everyone agrees we need a balanced package to find new revenue," he said, "and this seems like the right time for reform."