Editorial: US House tightens noose around miners’ necks

The biggest story during the week ended Oct. 27, the 43rd trading week of 2007, was the growing momentum in the U.S. House of Representatives for the passage of the pernicious Hardrock Mining and Reclamation Act of 2007 (H.R. 2262), an overhaul spearheaded by Nick Rayhall (D-W.Va.) of the Mining Act of 1872.

This act, if it becomes law, will be devastating for the U.S. mining sector, as it would pretty much shut off new mine investment on federal land, which accounts for up to 86% of land in some Western states, and bleed white existing operations with heavy taxes and suffocating regulations.

Not only would it shift mining investment and high-paying, small-town jobs out of the U.S., it would threaten national security by making the U.S. that much more dependent on potentially hostile foreigners for its strategic minerals.

There are many, many problems with the act, which is stuffed with rehashed anti-mining ideas first concocted under the Clinton administration, but what stands out is a new tax that would clobber miners with the world’s highest mining royalty rates: an 8% gross royalty on new mines built on federal land, plus a similar, retroactive 4% levy on existing mines on federal land. This 8% royalty would shelve most new mine development in the U.S., as few deposits could jump this economic hurdle.

Other deep flaws in the act include: a mechanism for political appointees to veto permitted projects on a whim; the death of the patent system and the introduction of mining permits that only last 10 years; the introduction of a myriad of redundant new environmental regulations; and the withdrawal of vast amounts of federal land from mineral exploration and mining.

At presstime, the bill looks set to pass in the House on Halloween with good support from the Democrats, meaning that the battleground will shift to the Senate floor early in the New Year. With the bill needing 60 or more votes to pass in the Senate, there is a much better opportunity here of stopping the madness.

If the act is approved by the Senate, then the last hope is a veto by President George W. Bush. The White House has come out strongly against the bill, which it sees as an unconstitutional confiscation of private property, but the president has rarely used his veto power.

On the plus side, the U.S. mining industry is unified like never before, and has shown it’s ready to compromise and accept more reasonable royalties, particularly ones based on profits rather than gross, and thus able to withstand the inevitable ups and down of a cyclical industry.

If you have any stake in U.S. mining, now’s the time to throw your full support behind the National Mining Association and the Northwest Mining Association, both of whom are lobbying hard on your behalf to defeat this act.

* The United States dollar and the dollar-denominated gold price almost invariably sit on opposite ends of a seesaw, so as the greenback has weakened, gold has headed toward the peaks it last saw in early 1980. Yes, they’re prices we haven’t seen in 27 years, but here’s some perspective.

The peak of the gold market in 1980 came on Jan. 21, when the London afternoon fix was exactly US$850 per oz. If you plug that into the U.S. Bureau of Labor Statistics inflation calculator (at www.bls.gov), you find that the 1980 peak is US$2,150.69 in 2007 dollars.

It gets even better in Canadian dollar terms. The Jan. 21 price of US$850 translated to $988.38 at the then-current exchange rate; using the Bank of Canada’s inflation calculator (www.bankofcanada.ca), that comes to $2,457.77 in 2007 Canadian dollars, or US$2,577.63 at current rates. So the gold market is still a long, long way from the exuberance (didn’t somebody once call it “irrational?”) of January 1980.

Another useful comparison is to US$35-per-oz. gold, first fixed in late January 1934. At U.S. inflation rates, US$35 in 1934 is worth US$544.56 today. The fixed gold price that was superseded by U.S. President Franklin Roosevelt’s devaluation of the dollar was US$20.67 per oz. — US$331.50 in today’s dollars if inflated from 1933, the last full year of pricing under the Coinage Act of 1792.

Send your Letters-to-the-Editor and other op-ed submissions to the Editor at: tnm@northernminer.com, fax: (416) 510-5137, or 12 Concorde Pl., Suite 800, Toronto, ON M3C 4J2.