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Mining Law Reform Testimony Senate Energy and Natural Resources Committee, July 14, 2009

Mr. Chairman and Members of the Committee:

On behalf of the Industrial Minerals Association – North America (IMA-NA), we offer this testimony regarding the Hardrock Mining and Reclamation Act of 2009 (S. 796).

IMA-NA is a trade association that represents companies that produce industrial minerals such as ball clay, barite, bentonite, borates, calcium carbonate, diatomite, feldspar, industrial sand, kaolin, mica, soda ash, talc, and wollastonite, and associate member companies that provide goods and services to the industry. IMA-NA typically represents seventy-five percent or more of the production for each of these minerals in the United States. IMA-NA members have demonstrated a commitment to the goals of sustainable development and operating in an environmentally responsible manner.

The United States enjoys the most environmentally benign processes for production of industrial minerals in the world. Industrial minerals are critical to manufacturing many of the products that we use every day. They are used in the production of drinking water, electricity, steel, copper, gold, glass, ceramics, paper, plastics, cement and concrete, rubber, detergents, insulation, pharmaceuticals, cosmetics, and oil and gas exploration and extraction. They also are used to make foundry cores and molds used for metal castings, in paints, filtration, metallurgical applications, refractory products and specialty fillers.

According to the U.S. Geological Survey’s 2009 Mineral Commodity Summaries published earlier this year, the industrial minerals industry currently employs an estimated 81,000 workers in the United States.1 This number is higher than either the metal or coal sectors of the industry. The total annual production of the industrial minerals industry is $43,600,000,000.2

The industrial minerals industry is very active throughout the Western United States and quite a bit of the production is on public lands. Any update to the General Mining Law of 1872 stands to greatly impact our industry, and thus the manufacturing industry within the United States. In fact, as currently drafted, the legislation would decimate the market for some of our minerals, and forfeit many of the jobs provided by our industry.

IMA-NA supports meaningful Mining Law reform. The United States is blessed with an abundance of natural resources, including minerals. As the nation grew, the General Mining Law established the framework for the exploration, discovery and development of hardrock mineral resources. Those mined resources helped create the wealth and infrastructure that established America as a great nation. Our population continues to require those same resources to sustain an improving standard of living. Today we expect, and demand, that mining be conducted responsibly and in accordance with all environmental protection laws. We live in a globally competitive environment and the U.S. continues to need a legal framework that encourages the long-term capital investment required to develop and produce minerals on the public lands. When mining is concluded, the land should be reclaimed, restored, or improved. The federal treasury also should be reasonably compensated for the minerals extracted. Meaningful Mining Law reform should recognize and embrace these basic concepts.

While IMA-NA is generally supportive of the effort undertaken by Chairman Bingaman to update the Mining Law of 1872, we have significant concerns about some of the provisions included in the proposed legislation.

Industrial Minerals Are and Must Be Locatable Minerals

The Industrial Minerals Association – North America and its members strongly encourage the Chairman and Members of this Committee to strike Section 504 “Uncommon Varieties” from the proposed Hardrock Mining and Reclamation Act of 2009. From the perspective of an industrial minerals producer, uncommon industrial minerals are properly defined as locatable minerals and must remain locatable minerals if these minerals are to be developed beneficially on public lands.

Why Uncommon Industrial Minerals Are Properly Defined As Locatable Minerals

A primary implication of having a mineral defined as a locatable mineral is the primacy of access afforded to the person who has discovered a commercially viable deposit of the mineral. Once a person has undertaken the work and expense of staking a claim, exploring the claim for a suitable mineral resource, and delineating the resource to determine commercial viability, it is logical that access to that deposit for the purpose of developing the found mineral be awarded to that person. In our view, the logic is as applicable to uncommon industrial minerals as it is to hardrock minerals.

Uncommon industrial minerals, as recognized in Section 3 of the Act of July 23, 1955 (30 U.S.C. 611), have the attribute of being “valuable because the deposit has some property giving it distinct and special value”. Conceptually, the “property” inherent in an industrial mineral deposit that gives that deposit distinct and special value is no different than a gold deposit where the “property” that gives the deposit distinct and special value is the gold contained in the rock. Bentonite clay has properties that make it rarer and more valuable than common clay. High-calcium limestone has properties that make it rarer and more valuable than common limestone. Gold-bearing rock has properties that make it rarer and more valuable than common rock.

Significant expenditures are required to explore for and delineate uncommon industrial mineral deposits. Several deposits may be explored before one is identified as having the required properties and size to make it commercially viable. Like hardrock deposits, uncommon industrial mineral deposits are explored using drilling machinery to collect core samples that are analyzed to determine if the required mineral properties exist. Samples must be taken over wide areas to delineate the extent of the deposit. Development of an uncommon industrial mineral deposit (e.g., clearing the land, removing soil and overburden rock, developing the mine, constructing infrastructure and installing machinery) in order to put the deposit into production also requires significant expenditure.

For example, the investigation and exploration costs to identify a high-calcium limestone or pure-dolomite limestone deposit (to be used for commercial quicklime production), permit and develop a quarry, and then put the quarry into production can exceed $30 million. The additional investment to permit and construct a quicklime manufacturing facility can easily exceed $100 million.

There is also significant legal precedence regarding how industrial minerals are treated under the General Mining Law. In 1979, the U.S. Department of Interior’s Bureau of Land Management (BLM) filed suit against Kaycee Bentonite Corporation.3 The BLM contended that 130 claims made under the General Mining Law were invalid because the bentonite (a clay) found within the claims was not a valuable mineral subject to location under the mining laws. The BLM asserted that only “uncommon varieties” of bentonite or bentonite of an “exceptional” nature as compared to other deposits of bentonite are locatable, and because the bentonite in question did not satisfy certain physical-chemical standards adopted by BLM, it was not an “uncommon variety” of bentonite or an “exceptional” bentonite.4

In his decision, Administrative Law Judge Robert Mesch found that when determining whether bentonite was of the “uncommon variety” one had to use the “exceptional/common clay” test. The question here is whether the particular bentonite has exceptional qualities that make it useful for purposes for which common clays cannot be used. Judge Mesch noted in his decision:

"Wyoming or “western” bentonites have a unique set of chemical and physical properties. No earth or non-bentonitic clay, however treated or blended, can duplicate those chemical and physical properties. It is the chemical and physical properties of bentonite, itself, which make it useful for purposes which common clay cannot be used. Blending or the use of chemical additives does not add to or alter its chemical or physical properties, it merely enhances the properties inherent in bentonite as it occurs in nature."5

The decision was affirmed by the Interior Board of Land Appeals (IBLA) three years later following an appeal from the BLM.6 These decisions have given a legal precedence to the claim that bentonite is an uncommon clay, and should be locatable under the General Mining Law of 1872.

Why Uncommon Industrial Minerals Must Remain Locatable Minerals

Because of the significant cost of exploration, delineation, and development of an uncommon industrial mineral deposit and associated processing facilities, the only viable business model for commercial development of these deposits is one that is based on secure, long-term, exclusive access to the deposit. No business operator would be willing to pursue costly exploration and delineation of an uncommon industrial mineral deposit if a competitor could then access the deposit through a competitive contract sale. No business operator would invest in development of a deposit and construction of a processing facility if they only were assured access to the deposit for a maximum of ten years.

If uncommon industrial minerals do not remain as locatable minerals, new uncommon industrial minerals projects will not move forward. This will result in future shortages of these minerals, increased costs for consumers of these minerals, and the loss of good, high-paying jobs.

Why Strike Section 504

Section 504 of the proposed Hardrock Mining and Reclamation Act of 2009 would have the affect of ensuring uncommon industrial minerals would not continue to be defined as locatable minerals. Section 504 also would overturn legal precedents that have established clear definitions for how to determine if an industrial mineral should be deemed locatable.

Section 504 (b)(2) – DISPOSAL, states:

"Disposal – Subject to valid existing rights, effective beginning on the date of enactment of this subsection, notwithstanding the references to the term common varieties in this section and to the exception to the term relating to a deposit of materials with some property giving it distinct and special value, all deposits of mineral materials referred to in this section (including block pumice referred to in subsection (c)(1)) shall be subject to disposal only under the terms and conditions of the Act of July 31, 1947 (commonly known as the Materials Act of 1947)(30 U.S.C. 601 et seq.)"

As we understand this language, it would appear that all deposits of these minerals7, whether common or uncommon, would be subject to disposal under the Mineral Materials Act and removed from the General Mining Law. The Mineral Materials Act authorizes the Secretary to dispose of mineral materials on the public lands of the United States through competitive sales in accordance with rules and regulations promulgated under the authority of the Act. The regulations for this purpose are found at 43 CFR Part 3600. These regulations were designed in anticipation of small volume, short-term commodity type sales of material, such as sand and gravel needed for road projects. They establish a disposal method that involves competitive contract sales based on volume or tonnage, two-year price adjustments and a maximum contract period of 10 years. The BLM can designate an area for common use and the submission of a mining and reclamation plan is at the option of the BLM.

Conditions for disposal under the Mineral Materials Act are such that no viable business model would exist for identifying and exploiting these valuable mineral resources. As stated above, the consequence of uncommon industrial minerals not remaining as locatable minerals will be the cessation of uncommon industrial mineral development on public lands. Jobs would be lost. Small towns that rely on these high-paying mining jobs that are their life-blood would be destroyed. And the federal government would be costing itself millions of dollars each year in lost revenue from the royalty fees under consideration.

It is for these reasons that we strongly encourage the Chairman and Members of this Committee to strike Section 504 “Uncommon Varieties” from the proposed Hardrock Mining and Reclamation Act of 2009.

Royalty Provisions

IMA-NA strongly supports a production payment or royalty for materials extracted from public lands. IMA-NA believes the approach taken in the legislative proposal by Senator Bingaman amounts to a good first-step and solving the royalty rate issue in Title II. We are concerned though that the actual rate is left uncertain as it is subject to a rulemaking process. The uncertainty could damage the mining industry in the U.S. as they wait for the rulemaking process to conclude.

IMA-NA believes that any production payment royalty system should be based on mine-mouth values for minerals produced from new mining claims on federal lands. Industrial minerals, although some are rare and unique, typically are low-cost, low-margin minerals and the royalty rate applied to industrial minerals must reflect those facts. In establishing a royalty rate and valuation methodology Congress historically has recognized distinct economic models among the various minerals produced from public lands. Similar distinctions must be carried forward in the royalty rate and valuation methodology related to locatable minerals in any reform of the Mining Law. The royalty obligation to develop minerals on the public lands must be reasonable to keep industrial mineral production on public lands globally competitive. A royalty rate for industrial minerals produced from new mining claims on the order of two percent (2%) based on mine-mouth values (e.g., the unprocessed mineral) is regarded as both reasonable and fair.

Security of Title and Tenure

IMA-NA is very concerned that this legislation will significantly impact the security of tenure our operations require by eliminating the right to use or occupy public land for mineral purposes. We would support amendments that provide for security of title and tenure from the time of location through mine reclamation and closure. Long-term capital investments require certainty and the patenting of lands historically provided that certainty. If patenting were abandoned, a substitute legal framework would be required to clarify existing rights applicable to surface and subsurface activities in advance of, as well as during, development and through reclamation.

Environmental Standards

IMA-NA supports recognition of the existing comprehensive framework of federal and state environmental laws that regulate all aspects of mining from exploration through reclamation and closure. Additional environmental standards specific to mining on public lands are not the solution. Instead, the solution lies in compliance with, and uniform enforcement of, existing laws and regulations.

Abandoned Mine Land and Community Impact Funds

IMA-NA supports the establishment of AML and community impact funds financed by revenue generated from the royalty/production payments. Any new programs should be coordinated with existing state and federal programs.

Access to Public Lands

IMA-NA supports multiple use of public lands. Absent specific Congressional withdrawals, the public lands should be open to mineral exploration and development. When not closed for safety reasons related to mining operations, the public lands should be open to other compatible uses. Mineral exploration and development can, and should, occur concurrently and sequentially with other resource uses.

Conclusion

IMA-NA supports meaningful Mining Law reform. Our industry is a significant portion of the United States mineral industry, and as a key feedstock to many everyday products, a vital part of the manufacturing industry. The industrial minerals industry that has operations on public lands stands to be severely impacted by Section 504 of S. 796, the Hardrock Mining and Reclamation Act of 2009.

The industrial minerals industry is responsible for the employment of roughly 81,000 employees throughout the United States, a number that is not quite three times that of the metals sector.8 The industry had a total production of $43,600,000,000 in 2008.9

Removing industrial minerals, such as bentonite and calcium carbonate, from the provisions of the General Mining Law and placing them under the jurisdiction of the Mineral Materials Act of 1955 would potentially be an industry killer, and almost certainly will be a jobs killer in the western United States. Industrial minerals operations typically exist in rural areas, and are the life-blood of small communities. The industry provides secure, high-paying jobs that help to keep rural communities afloat.

The Mineral Materials Act of 1955 was designed to give states easy access to common materials such as stone and gravel used for building roads. The extraction of these materials is not reliant on security of tenure of land or capital investment, whereas industrial minerals’ operations are extremely reliant on capital investment and security of tenure of land. Some of our operations require $60-100 million in investments and require 50 years or more to adequately complete operations.

Attempts to move industrial minerals into the Mineral Materials Act have been denied by the IBLA in the past. Industrial minerals, such as bentonite, have consistently been recognized as unique and locatable minerals under the General Mining Law in these challenges. To do otherwise at this stage would be ignoring decades of established case law and precedence.

For these reasons, the Industrial Minerals Association – North America and its members strongly encourage the Chairman and Members of this Committee to strike Section 504 “Uncommon Varieties” from the legislation when S. 796, the Hardrock Mining and Reclamation Act of 2009, comes up for consideration.

IMA-NA stands ready to participate constructively in this important discussion regarding how to ensure a fair, predictable and efficient legal and regulatory climate in Mining Law reform. We thank you for the opportunity to submit this statement for the record, and would be happy to make ourselves available to the Committee to answer any questions you may have regarding our statement.

Respectfully submitted,

Mark G. Ellis

President

1 See U.S. Geological Survey, 2009, Mineral Commodity Summaries 2009, p. 8 http://minerals.usgs.gov/minerals/pubs/mcs/2009/mcs2009.pdf

2 Id.

3 See United States of America v. Kaycee Bentonite Corporation, U.S. Department of Interior Office of Hearings and Appeals – Hearings Division, IBLA 79‐445, April 26, 1979.

4 See id, p. 4.

5 See id., p.36.

6 See United States v. Kaycee Bentonite Corp., 64 IBLA 183 (1982)

7 The minerals listed at the beginning of section 504 referenced here include: sand, stone, gravel, pumice, pumicite, cinders, and clay. Stone could refer to high‐grade calcium carbonate, diatomite, talc, and other industrial minerals.

8 See U.S. Geological Survey, 2009, Mineral Commodity Summaries 2009, p. 8. http://minerals.usgs.gov/minerals/pubs/mcs/2009/mcs2009.pdf  The metals sector employs 33,000 workers.

9 Id.