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矿税白皮书

EARTHWORKS WHITE PAPER

A H ARDROCK M INING R OYALTY:

CASE STUDIES AND INDUSTRY NORMS

T HE NEED FOR A ROYALTY FOR MINING ON PUBLIC LANDS:

While mining on public lands in the U.S. provides essential resources to modern economies, there are too often instances where irresponsible mining has devastated public lands and water resources. According to the EPA, 40% of the stream reaches in headwaters of western watersheds have been polluted by mining, and cleaning up the all abandoned hardrock (metal) mines could cost as much as $50 billion.1

The lack of a royalty has left most abandoned hardrock mines unreclaimed for want of cleanup funding; they pose a continual threat to public safety and water resources. Just last month, a young girl died after falling down an abandoned copper mineshaft in Arizona.2

Although in public statements mining companies and industry trade associations have expressed support for a royalty, to date the hardrock mining industry has never paid a royalty on the metals they take from public lands. Since 1872, when the law that governs mining on public lands was written, at least $245 billion worth of metals like gold, silver, copper, and uranium have been mined with no return to the taxpayer.3 The underlying debate centers on the nature and amount of the royalty.

To ensure that public safety is protected and contaminated landscapes and waterways are cleaned up a royalty or fee levied on mining on public lands must generate adequate funds from the outset.

A LL OTHER U.S. EXTRACTIVE INDUSTRIES PAY ROYALTIES FOR PUBLIC MINERALS: Those minerals covered by the 1872 Mining Law are given away4 without a royalty. Every other extractive industry pays 8–16.7% of the value of what they extract from public lands.

Royalties paid by other extractive industries

for United States' minerals5

R OYALTY TYPES:

A royalty is "a share of the product or profit reserved by the grantor [owner]"6. In the case of the 1872 Mining Law, the public, or the federal government, is the owner.

In the mining reform debate, two types of royalties have been discussed: net proceeds (also known as "net profit") and net smelter (sometimes referred to as "gross").

A net proceed/net profits royalty is calculated as a percentage of the gross income of a mine

minus all the expenses occurred to produce the income.7 This type of royalty enables a mining company to deduct their cost of doing business from their income before the royalty is charged.

These royalty schemes allow extensive administrative, business and operating deduction, not just

those associated with processing mined ore into marketable commodities.

A gross royalty is a value-based royalty charged on the revenue that the mining company receives from the sale of the product.8 A net smelter return (NSR) royalty is a modified gross royalty where "the amount

of money which the smelter or refinery pays the mining operator for the mineral product and is usually based on a spot, or current price of the mineral, with deductions for the costs associated with further processing."9 No deductions are made for operating costs.10

T HE STANDARD ROYALTY IS GROSS/NET SMELTER:

The hardrock mining industry pays royalties to foreign governments, states and even to other mining companies. These royalties are most often gross or net smelter royalties (value-based).

On a state-by-state level, the majority of states (10 out of 13, or 77%) charge a gross or net smelter royalty on hardrock minerals.

U.S. state metal mining royalties:11

Private interests most often charge a gross or net smelter royalty:

A review of annual reports and regulatory filings with the Securities and Exchange Commission show that private interests charge royalties that are gross or net smelter royalties. Of the 47 private royalties reviewed, 35, or 74%, were some form of gross or net smelter royalty.12

Foreign royalties most often charge gross or net smelter-type royalties:

The World Bank recently surveyed royalties imposed by governments around the world.13 Excluding the United States, they surveyed 31 governments. Of those jurisdictions surveyed, 21 out of 31, or 68%, charged some form of gross or net smelter type royalty.

N ET PROCEEDS ROYALTY CASE STUDIES – FLEECING THE TAXPAYER

Two states, Alaska and Nevada, charge net proceeds royalties. Analysis shows that neeither provides taxpayers a fair return and if applied to minerals on federal lands such a system would likely fall woefully short of funds necessary to make even an initial dent in addressing the legacy of abandoned mines. Nevada:

The state of Nevada imposes a sliding scale mineral net proceeds tax14 on mineral operations15. It ranges from 2 to 5% depending upon the ratio of net proceeds to gross proceeds. Data published by the state of Nevada16 for 2000-2005 show that the mining industry in Nevada sold $16.4 billion worth of minerals.17 Despite this large amount of revenue, the industry only paid $158 million, or less than 1%, into the Nevada treasury.

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