Interior Secretary singles out Barrick — Proposed hardrock

American gold producers — among them, many Canadian-controlled mines — are bracing themselves for a proposed royalty on hardrock mines in the U.S. As part of its economic program, the Clinton administration has proposed a royalty ranging from 5% to 12.5% on minerals removed from federal lands. Currently, there is no charge on metals mined from public lands.

The royalty issue surfaced when Secretary of the Interior Bruce Babbitt announced that he would delay approval of an application by American Barrick Resources (TSE) to patent about 1,800 acres of federal land at its Goldstrike mine in Nevada. The land contains an estimated 30 million oz. of gold, worth about US$10 billion at today’s prices.

Barrick has been involved in the patent application for two years and has spent $1 billion developing Goldstrike. Barrick President Robert Smith says he expects the patents will be granted in due course since his company has followed all rules and regulations to the letter.

Babbitt’s statements sent Barrick’s stock on a roller-coaster ride. At presstime, it had closed down $2 on the week to $19.63.

The proposed royalty would affect almost all U.S. gold producers to some degree, since most operations involve a mix of private, patented and federal lands. Babbitt says the royalty tax would not cause dramatic cuts in jobs or earnings. Mining officials disagree.

David Hutton, vice-president of exploration and development for Rayrock Yellowknife Resources (TSE), says such a tax would force it to close its Dee Mine in northern Nevada. He adds that many producers would have to forgo future expenditures at U.S. operations.

Hugh Leggatt, a spokesman for Placer Dome (TSE), says the tax would have an adverse effect on the Bald Mountain and Cortez gold mines in Nevada. At Bald Mountain alone, cash production costs would rise by 21% or US$40 per oz., he says, adding that the royalty would make the U.S. very unattractive to mining. Newmont Mining’s (NYSE) vice-president of corporate affairs, James Hill, feels that the royalty would “hinder growth and exploration” in the U.S. Hill says that some producers might even revise their mining plans so that many reserves on federal lands would remain unmined during President Clinton’s tenure. Newmont has an advantage over many producers in that 96% of its operations are on private lands.

The Clinton administration believes reform of the century-old Mining Law is long overdue. More than a million people hold claims on public land, most of them bought for prices set by the administration of Ulysses S. Grant in 1872. Since that time, Congress has failed, on numerous occasions, to change the law, under which an individual can establish a mining claim on federal land for only a few dollars an acre, and pay no royalty on production. American Mining Congress spokesman Keith Knoblock says a royalty is likely. “But what the final form will be, nobody knows,” he says.

Barrick’s Smith agrees that a royalty is inevitable but believes it will be on a net proceeds basis, which would allow marginal operations to remain in production. He says the last thing the Clinton administration wants is to throw more people out of work.

Franco-Nevada Mining (TSE) Chairman Seymour Schulich says the royalty controversy will probably follow a predictable political course. “They (the politicians) threaten to cut off both your hands and legs. At the end of the day, they cut off three fingers and we say `thank you.'”

The production royalty legislation is part of a Mining Law bill before the U.S. Senate and House of Representatives.