The Last Great Giveaway

AH, AMERICA, LAND OF OPPORTUNITY. Where one enterprising company bought 17,000 acres in Colorado from the U.S. government for $42,500, then immediately resold it to oil companies for $37 million. Where the subsidiary of a South African firm is on the verge of buying 1,016 acres in Nevada from the Feds for $5,090 and then mining the $1.1 billion in gold buried below it. Where another firm is getting set to mine $200 million worth of gold on federal land next to Yellowstone National Park without paying the U.S. Treasury a dime in royalties.

If this sounds like the sort of robber-baron capitalism that ran rampant through the 19th century, there's a good reason: these land grabs are happening under a law signed by Ulysses S. Grant. The Mining Act of 1872, intended to lure Americans west, allows any ""hard rock'' miners (including prospectors for gold, silver, copper and platinum) to mine federally owned land for pennies. By contrast, oil, gas and coal companies pay royalties of as much as 12.5 percent of their gross revenues for the privilege of tapping federal lands (chart). The act even allows mining companies to gain title to the publicly owned land and, more important, everything underneath it, for no more than $5 an acre. Companies have bought 3.2 million acres of federal lands since 1872; every year they mine $1.2 billion worth of hard-rock minerals from government parcels, according to Congress's General Accounting Office. Last week, Interior Secretary Bruce Babbitt signed over America's richest gold deposit of all: for $9,765, the Toronto-based American Barrick Resources took title to 1,949 acres around Elko, Nev. (map), that sit atop what could be $10 bil-lion worth of gold. The transfer, said Babbitt, is ""the biggest gold heist since the days of Butch Cassidy.''

To be fair, the difference between what Barrick paid the Feds for the land and the $10 billion worth of gold below will not be pure profit. The company estimates it has spent $1 billion on equipment and new technology to extract the gold. (While $400-an-ounce gold has helped trigger the new gold rush in the American West, so have new chemical techniques, which make it profitable to mine rock containing just .017 ounce of gold per ton.) The White House and a growing number of reform-minded congressmen, however, say the public is still being fleeced. For years critics of the mining industry focused on its environmental sins -- toxic tailings, open pits scarring the earth. But the White House has been burned by defeat in Congress on other Western issues such as grazing rights. So for this battle, Interior is trying to keep the spotlight on the bottom line. ""People who have been getting something for free are finally being asked to pay for it,'' says Babbitt. ""It's time to stop the gold heist.''

Congress is trying. Under a bill passed by the House of Representatives last November, mining companies would pay royalties of 8 percent on gross revenues for all hard-rock ores and could never buy the land outright. A Senate version, passed last May, would collect 2 percent of net profits and allow purchase of federal land at ""fair market value'' for six months after the bill becomes law -- with that value assessed on the land's surface and not what lies beneath. Based on current revenues, miners would pay the Treasury annual royalties of $96 million if the House prevails.

Industry naturally prefers the Senate bill. The ""fair market value'' approach is especially sweet: most of the land in question is otherwise worthless desert that would cost $50 to $100 an acre. In contrast, the House bill, charges Keith Knoblock of the American Mining Congress, is ""a no-mining bill.'' Its demand for 8 percent royalties on gross revenues -- that is, before deduction for expenses -- would cost 47,000 jobs out of about 140,000, according to an industry study. Barrick alone provides 1,700 high-wage jobs at Elko, and has chipped in donations for sewer lines and schools in town. ""Mr. Babbitt obviously fails to recognize the sizable investment made by mining companies before extracting a single ounce of gold or silver,'' says Jack Gerard of the Minerals Resources Alliance, ""or the millions of tax dollars and thousands of jobs generated.''

Job-loss estimates are made to be challenged. The U.S. Bureau of Mines projects a loss of 1,100 jobs from an 8 percent royalty. The Congressional Budget Office calculates that cleaning up abandoned mines, as the reform bills require, would create almost as many jobs as would van-ish when small operators and marginal claims fold.

Now that America ""has long passed the point where we have a great frontier out [West] that needs to be settled,'' as Jim Lyon of the reform-minded Mineral Policy Center puts it, exactly what does the government get out of the 1872 law? Billions of dollars in Superfund liabilities. Some companies that have mined all they profitably can from a site declare bankruptcy. The government has to clean up the poisonous tailings and other mess. By 1992, for instance, cyanide used to leach specks of gold out of ore at a Colorado mine was contaminating ground water; Summitville Consolidated Mining Co. filed for bankruptcy, and the government took over the $40,000-a-day cleanup. The West is littered with such ghost sites. Many do not pose an immediate threat to environmental or human health, but those that do are whoppers. The nation's biggest Superfund site is a Montana gold, silver and copper mine abandoned in the 1950s; 55 others are also Superfund sites. It will cost more than $32 billion to clean up the old mines.

Such expensive messes do not help industry's cause. As a result, this may be the year that mining reform finally passes. Thanks in part to the Barrick purchase, Sen. Bennett Johnston, chairman of the committee that voted out the industry-friendly bill, is retooling the legislation. It would require royalties on a sliding scale based on market price, not the mere 2 percent of net revenues in the original. Much of the money would go toward cleaning up old mines. The House and Senate still disagree on whether Interior should have the power to declare some sites -- such as a gold mine in protected grizzly-bear habitat near Yellowstone -- off-limits to mining. The lawmakers had better act fast. More than 600 firms, alarmed at the prospect that the free ride is ending, are requesting title to their claims. In one, Chevron and the Manville Corp. want 2,532 acres in Montana containing $3 billion to $4 billion worth of palladium and platinum. Price: $12,660.

The greatest gold rush in U.S. history

AMOUNT OF GOLD EXTRACTED, IN TONS

1849-1859 986

1982-1992 2,094


LET'S MAKE A DEAL

Under the 1872 Mining Act, companies can buy federal land for $5 or less an acre.

Montana
A company is seeking title to 2,000 acres of land, containing an estimated $3 billion worth of platinum and palladium. The price: less than $10,000.

East Mojare, Calif.

A gold-mining company has applied for title to 233 federal acres containing $320 million worth of gold. The price: $1,165.

Keystone, Colo.

In 1983 a 160-acre parcel was bought for $400. Some of the land, near the Keystone ski resort, was later sold for $11,000 per acre.

What the federal government receives from extraction of selected resources on public lands:

RESOURCE, % OF THE GROSS
Oil, 12.5
Natural Gas, 12.5
Coal*, 12.5
Sulfur, 5
Gold, 0
Silver, 0
Uranium, 0

*SURFACE MINED.


SOURCE: BLM.
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