The technical challenge of cleaning up existing hardrock mine problems
is daunting. Finding money for the job will be harder still. But the most
critical question is how to ensure that the future pursuit of hardrock
metals won't generate toxic burdens like those that have been left behind
by the past century of metal mining. To a large degree, the answer lies
in getting the prices right. And doing so will require a careful look
at state and federal policies related to metal mining. If the new economics
of mining don't force a fuller accounting of costs and a closer scrutiny
of subsidies, hidden toxic legacies will haunt our children just as they
Many observers say that environmental damage has been encouraged by one
of the mining industry's oldest regulations, the General Mining Law of
1872, a federal policy designed to promote settlement of Western territories
and to develop the nation's mineral resources, much as the better-known
Homestead Act encouraged agricultural development.
The Mining Law grants free access to individuals and corporations to prospect
for minerals on public lands and it allows them, once they make a discovery,
to stake a claim that prohibits others from using the land. Obtaining
permanent title to surface and mineral rightsthrough a "patent"costs
just $2.50 to $5 an acre, a price that hasn't changed in the 130 years
since the Law was enacted. Regardless of whether the claim holder purchases
a patent, she can extract minerals from public lands without paying a
cent in royalties or rents to the U.S. Treasury.
The mining industry strongly defends the Law, particularly its creation
of free access and secure title to public land claims. The high costs
and uncertain outcomes of mineral exploration make mining an extremely
risky industry; without secure land tenure and the right to prospect in
federal lands, contends the industry, investment in mining would dry up.
Without the Mining Law, the incentive to develop would be significantly
reduced, production costs would rise, and the nation would suffer through
diminished production of essential minerals and growing dependence on
imports, a risky proposition if the nation were at war.
But others say the Law essentially amounts to a giveaway of publicly owned
resources. "This policy ... bestows a large subsidy on private mining
companies," said the Council of Economic Advisers in its 1997 Economic
Report of the President. "Between May 1994 and September 1996,
the Federal Government was forced by the General Mining Law to give away
over $15.3 billion worth of minerals in return for which taxpayers received
The Report also noted that by establishing mining as the highest
use of public lands, the Law's claims and patents prevent other criteria
from being considered in determining the most beneficial use of lands.
"Current ... policies are thus characterized by subsidized extraction
and use restrictions that limit the transferability of extraction rights,"
concluded the Report. "These policies have resulted in overextraction
and significant environmental damage."
Most observers agree that fair market values would set far higher prices
for most public lands than the $5 an acre fee charged to mining companies
and note that coal, gas and oil miners all pay royalties, rents or leasing
fees for resource extraction on both public and private lands.
Organizations like the Mineral Policy Center, a staunch critic of the
Mining Law, also point out that tax incentives like the percentage depletion
allowance (a tax deduction for depletion of a mineral resource) and the
"expensing" (writing off in the year of expenditure) of exploration
and development costs also subsidize the hardrock mining industry. In
President Bush's 2003 budget report, those two items amount to a "tax
expenditure" (or industry tax deduction) of over $1.5 billion during
the 2003-2007 period.
While the mining industry argues that such incentives are necessary to
encourage mineral exploration in a high-risk industry, it's unclear how
much influence they have on mineral production levels. "Imposing
royalties, increasing holding fees, and repealing the percentage depletion
allowance would have some impact on domestic hardrock mineral production,"
concludes a June 2002 Congressional Research Service report, "but
the level of any production decline attributable solely to new fees is
difficult to estimate."
The 1872 Mining Law has been the focus of reform attempts virtually since
the day Ulysses Grant signed it, and the mining industry has successfully
fended them off. The most recent reform effort is a U.S. House bill introduced
in May 2002 that would, among other things, require an 8 percent royalty
fee for minerals mined from public lands and establish environmental performance
standards for mining operations. Other recent bills call for a permanent
moratorium on patenting and a repeal of the percentage depletion allowance.
The subsidies that the Law and the current tax code provide likely lead
to a less than societally optimal allocation of resources. Through their
reduction of production costs, they shift resources toward mining on public
lands that might be better spent otherwise, and they thereby increase
environmental damages beyond what might be necessary to meet society's
needs. "By encouraging overinvestment and overproduction," noted
the Council of Economic Advisers, "subsidies attract resources away
from other, more productive sectors of the economy and reduce overall
economic well-being. Reducing subsidies can improve economic performance
by giving producers better information about the true cost of using public
Clean up or go broke?
But perhaps more significant both economically and environmentally than
these subsidies is the historically common pattern of mines closing down,
with the companies that had run them declaring bankruptcy and thereby
escaping the costs of cleaning up the environmental damages their activities
had created. The practice shifts private costs to the public, which either
pays frequently large sums for mine reclamation or suffers diminished
ecological or human health as mine wastes degrade the local environment.
Either way, the public pays.
South Dakota's Gilt Edge Mine, owned by Dakota Mining, is an obvious case,
with environmental remediation costs well over $30 million and only $6
million provided by the company's bonds. Designated as a Superfund site
in December 2000, Gilt Edge's cleanup became a federal and state responsibility:
90 percent of the cost will be paid by the EPA and 10 percent by South
Critics of Dakota Mining, including Richard Fort, president of Action
for the Environment, based in Lead, S.D., are now concerned that former
Dakota Mining chair Alan Bell is developing a metal mine in northeastern
Minnesota. "I wouldn't trust him," said Fort. "If I were
you there in Minnesota, I'd look askance at them very much."
South Dakota Department of Environment and Natural Resources engineer
Mike Cepak is less critical of Bell. "In our relationship with him,
he tried to do the right thing," said Cepak. "When the company
failed, he had no problem signing over the bond to us. ... But it still
leaves us frustrated that a company that came in with a lot of financial
resources in the late '80s ends up with nothing a few years later, and
we're left holding the bag."
In Montana, the Department of Environmental Quality (DEQ) and the
EPA currently suggest that remediation of the Zortman-Landusky mines
near Hays will cost about $67 million, though local American Indian
tribes and environmental groups say that understates the true cost.
But the January 1998 bankruptcy of the mine's operator, Pegasus,
left insufficient funding to cover reclamation costs and a May 2002
DEQ decision estimates that an additional $33.5 million will be
needed from state and federal coffers.
Of course, not all mining companies leave their sites in poor shape
after the mines have closed. The McLaughlin Mine in California's
Napa Valley is often cited as a responsible mining operation. The
Flambeau Mine in Ladysmith, Wis., went to substantial lengths to
run a clean mine and reclaim the site after the mine shut down in
1997. (Its critics still have doubts.) But the frequency and expense
of environmental disasters left behind after mine operators go broke
have severely tainted the industry as a whole.
Most statesincluding all Ninth District stateshave required
that mining companies purchase bonds to ensure that they'll be able to
cover the costs of reclamation, but as the scale of environmental damage
has become clearer, analysts have begun to realize that many of the bonding
requirements set by states are inadequate. In fact, in the face of numerous
instances like the Zortman-Landusky bonding shortfall, Montana has launched
efforts to reevaluate reclamation costs and increase required bond levels.
In April 2002, for example, the DEQ announced it was raising the reclamation
bond for the Black Pine Mine near Philipsburg from $70,000 to $8.1 million
because of anticipated acid mine drainage problems. The mine's owner,
Asarco, a subsidiary of Grupo Mexico, asked for an extended deadline to
find sufficient bonding; state officials said Asarco was being "responsive
In August, however, Asarco was sued by the U.S. Justice Department to
stop it from selling off profitable assets which "could lead to Asarco's
failure and will certainly guarantee Asarco's inability to fully perform
its environmental remediation obligations." The EPA and Justice Department
hold that Asarco owes about $1 billion for cleaning up toxic mine wastes
in 12 states. In Montana, Asarco's liabilities (in addition to the Black
Pine liability) include roughly $51 million for cleaning up arsenic, lead
and cadmium pollution near an East Helena smelter and up to $11 million
for contaminated groundwater in Butte.
Bonding requirements in many other cases are likely inadequate. In testimony
late this July before the U.S. House Subcommittee on Energy and Mineral
Resources, Jim Kuipers, a Boulder, Mont., mineral engineer, warned of
"the significant underestimation of the actual cost of modern hardrock
mine reclamation and closure, and the lack of financial guarantees to
ensure that taxpayers will not foot the bill." The total cost of
cleanup, he testified, could be "as high as $10 billion or more."
The chairman of the London-based mining giant Rio Tinto, Robert Wilson,
reported at a Global Mining Initiative conference in May that the costs
would be even highernearly $35 billionif the cleanup costs
for tens of thousands of abandoned mines in the western United States
were included. Others say the costs could be higher still, closer to $70
Or looser bonds?
At the same time that states are beginning to reevaluate the cleanup
costs of hardrock mining, the industry itself is seeking relief from bonding
requirements. It complains that a shortage of capital in the insurance
industry due to major corporate bankruptcies and to the Sept. 11 terrorist
attacks has dried up the surety bond market. The industry asked Department
of Interior Secretary Gale Norton to allow a return to the earlier practice
of permitting "corporate guarantees"essentially promises
to payrather than surety bonds, and Norton convened a staff task
force to look into the alleged "crisis" in reclamation bonding.
Critics say the crisis is of the industry's own making since it has a
poor track record in mine reclamation; surety companies are simply recognizing
that high-risk profile. Corporate guarantees have proven inadequate in
the past, contend critics, and won't work in the future. Moreover, they
point out, large mining corporations have little trouble securing surety
bonds. As Dale Alberts, president of Nicolet Minerals in Crandon, Wis.,
said, "we're a subsidiary of BHP Billiton, the largest diversified
mining company in the world and when you've got that size of a balance
sheet, people are more than willing to write bonds for you."
Observers predict that Norton may well relax bonding requirements, but
economists suggest that not requiring mining companies to provide solid
assurance for reclamation costs may be counterproductive. "Adequate
bonds or other guarantees that ensure mining companies will pay for proper
closure are simply the cost of doing business in this industry,"
said John Tilton, professor of mineral economics at the Colorado School
of Mines. "There is no reason in my opinionthough I realize
others may disagreeto ask society to subsidize mining so that small
miners can compete."
Getting prices right
Insisting that the mining industry pay its full costs of productionincluding
the cost of cleaning up its wasteis not a
self-righteous moral imperative or the far-fetched plea of misty-eyed
tree huggers. It's a simple matter of economic efficiency. If a producer
can shift some portion of its costswhether by strategy or neglectto
another unwilling party, it will naturally tend to produce more of that
product than is economically optimal for society as a whole. For an economist,
efficiency is served when prices charged and quantities produced reflect
the full cost to society. In the case of mining, when the production process
creates a waste byproduct like acid drainage that requires water treatment
in perpetuity, prices charged need to reflect the cost of treating the
Would paying full costs shut down mines? Yes, it seems likely that someperhaps
manyore deposits can't be mined in an efficient
full-cost manner, given current technology. And though our economy may
produce less metal, we'll also create less pollution and fewer expensive
cleanups. The economics will ultimately dictate the efficient quantities
of both metal and waste.
According to economist Tilton, paying the full environmental costs of
their operationsrather than shifting them to the taxpayerwill
indeed increase costs for mining companies in the coming years. But other
forces, particularly new technology, will be pushing costs down. "On
balance," said Tilton, "I expect the costs of mining and processing
most mineral commodities to continue their long-run decline, at least
over the next decade or two." Having to pay for its environmental
costs, he added, "will also greatly increase the incentives for the
industry to reduce the pollution and other previously external costs associated
with mining, and through new technologies I expect this to happen."
Whether Tilton's optimism is well-founded remains to be seen, and ours
may not be the generation to see it. The U.S. Geological Survey (USGS)
organized a conference this October where scientists and economists discussed
more environmentally benign methods of miningseeking deposits that
aren't located in acid-generating sulfides, for example, or reprocessing
waste piles that are already sitting above ground.
But at this point the industry resists such technologies, said Craig Johnson,
a USGS geologist who helped organize the conference. The industry, he
noted, argues that these cleaner mining techniques are far more expensive
than cyanide heap leaching and strip mining in sulfide ores. And that's
true, since the environmental costs often aren't part of the equation.
Only if the financial and regulatory framework forces the industry to
face those costs will mining get the prices right. It won't happen soon,
believes Johnson. "But maybe our children or our grandchildren will
be sitting in that kind of environment."
How much for a grizzly?
Estimating environmental values is difficult but essential
If the mining industry were forced to pay its
true costs, we as consumers would also feel the effects. The
price of the gold in our jewelry and the copper in our computers
would more accurately reflect its actual cost of production,
including the costs imposed on the environment. That's the
theoretical ideal pursued by economists.
But determining environmental costs is difficult because clean
air, water and landnot to mention mountain views and
grizzly bearsare public goods, the kind of "products"
that typically are hard to price. In the absence of clear
market values, economists use a variety of techniquessurveying
people about what they'd be willing to pay for such goods,
comparing properties with and without natural amenitiesto
estimate environmental values. The techniques aren't perfect,
but they're the best available.
Some environmentalists would say that nature has infinite
value, but trade-offs are inevitable. Mining companies shouldn't
be expected to spend unbounded amounts of money purifying
water, for example, because while it's always possible to
spend more money to extract another part per million or trillion
of a contaminant, at some point it becomes more beneficial
to spend the next dollar on something else of valuelike
saving whales. And a mining company committed to sustainable,
environmentally responsible development won't be sustainable
itself if it goes broke trying not to pollute.
Most economists would say that cost-benefit analysis, a technique
of comparing the values established for environmental goods
and the value of the minerals pulled from the earth, is the
best means for setting a cleanup standard, even if the environmental
values aren't absolutely accurate. "Society has to trade
off how much cyanide it wants in water and how much copper
it wants," observed Robert Cairns, a natural resource
economist at McGill University in Montreal. "Cost-benefit
analysis, with all its warts, is the only professional tool
we have for giving an idea of how to improve policy."
The technique has been valuable in evaluating mine reclamation
options in New Mexico, for example.
Other economists say that cost-benefit analysis, while theoretically
ideal, is too cumbersome to be useful in most cases. It's
more pragmatic to estimate a health-based standard and then
let industry figure out how best to meet it. "This is
a sophisticated, knowledge-based industry that clearly hasn't
run out of technological miracles," said Thomas Powers,
professor of economics at the University of Montana-Missoula.
"What we need to do is simply lay down what expectations
are in terms of behavior, in terms of what environmental damage
we'll accept, in terms of a permanent commitment to clean
up, and then let [the mining industry] choose the right site,
the right method. Let them find ways of providing the financial
security for reclamation."
If the industry is pushed to pay the full costs of environmental
compliance, their supply curves will shift to reflect the
elimination of the implicit public subsidy they've received
in the past. And well-designed, strictly enforced standards will help establish
more accurate prices. "If that's a standard that everybody
faces," said Powers, "it may be that we have to
pay more for gold, silver, copper or platinum, but indirectly
what will be happening is exactly what economists want to
happen: The costs associated with what otherwise would be
environmental damage get embedded in the prices."
Some mining industry officials complain that adhering to tough
regulations in the United States puts them at a competitive
disadvantage with corporations operating in countries with
less stringent standards. But most analysts say that environmental
compliance, while costly, is much less of a factor in corporate
decision-making about where to mine than ore quality and labor
And environmental standards are also going global. "The
World Bank and most worldwide financing institutions that
finance large-scale mining projects are requiring basically
North American standards to be applied to the design, construction
and operation of mining projects around the world," noted
Dale Alberts, president of Nicolet Minerals, a subsidiary
of BHP Billiton. "So it's slowly becoming a worldwide