Hardrock Mining
Information on Types of State Royalties, Number of Abandoned Mines, and Financial Assurances on BLM Land Gao ID: GAO-09-429T February 26, 2009The General Mining Act of 1872 helped open the West by allowing individuals to obtain exclusive rights to mine billions of dollars worth of gold, silver, and other hardrock (locatable) minerals from federal lands without having to pay a federal royalty. However, western states charge royalties so that they share in the proceeds from various hardrock minerals extracted from their lands. For years, some mining operators did not reclaim land used in their mining operations, creating environmental and physical safety hazards. To curb further growth in the number of abandoned hardrock mines on federal lands, in 1981, the Department of the Interior's Bureau of Land Management (BLM) began requiring mining operators to reclaim BLM land disturbed by these operations, and in 2001 began requiring operators to provide financial assurances to cover reclamation costs before they began exploration or mining operations. This testimony focuses on the (1) royalties states charge, (2) number of abandoned hardrock mine sites and hazards, and (3) value and coverage of financial assurances operators use to guarantee reclamation costs. It is based on two GAO reports: Hardrock Mining: Information on Abandoned Mines and Value and Coverage of Financial Assurances on BLM Land, GAO-08-574T (Mar. 12, 2008) and Hardrock Mining: Information on State Royalties and Trends in Imports and Exports, GAO-08-849R (July 21, 2008).
Twelve western states, including Alaska, that GAO reviewed assess royalties on hardrock mining operations on state lands. In addition, each of these states, except Oregon, assesses taxes that function like a royalty, which GAO refers to as functional royalties, on the hardrock mining operations on private, state, and federal lands. The royalties the states assess often differ depending on land ownership and the mineral being extracted. For example, for private mining operations conducted on federal, state, or private land, Arizona assesses a functional royalty of 1.25 percent of net revenue on gold mining operations, and an additional royalty of at least 2 percent of gross value for gold mining operations on state lands. The actual amount assessed for a particular mine may depend not only on the type of royalty, its rate, and exclusions, but also on other factors, such as the mine's location relative to markets. Over the past 10 years, estimates of the number of abandoned hardrock mine sites in the 12 western states reviewed, as well as South Dakota, have varied widely, in part because there is no generally accepted definition for a hardrock mine site. Using a consistent definition that GAO provided, these states reported the number of abandoned sites in their states. On the basis of these data, GAO estimated that there are at least 161,000 abandoned hardrock mine sites in these states, and these sites have at least 332,000 features that may pose physical safety hazards and at least 33,000 sites that have degraded the environment. According to BLM data, as of November 2007, hardrock mining operators had provided financial assurances worth approximately $982 million to guarantee reclamation costs for 1,463 hardrock mining operations on BLM land and 52 of these operations had financial assurances valued at about $28 million less than needed to fully cover estimated reclamation costs. However, GAO determined that the assurances for these 52 operations should be more accurately reported as about $61 million less than needed for full coverage. The $33 million difference between GAO's and BLM's estimated shortfalls occurs because BLM calculated its shortfall by comparing the total value of financial assurances in place with the total estimated reclamation costs. This approach effectively offsets the shortfalls in some operations with the higher than needed financial assurances of others. However, the financial assurances that are greater than the amount required for an operation cannot be transferred to an operation with inadequate financial assurances. In contrast, GAO totaled the difference between the financial assurances in place for an operation and the financial assurances needed for that operation to determine the actual shortfall for each of the 52 operations for which BLM had determined that financial assurances were inadequate. BLM has taken steps to correct the reporting problem GAO identified.
GAO-09-429T, Hardrock Mining: Information on Types of State Royalties, Number of Abandoned Mines, and Financial Assurances on BLM Land
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Testimony:
Before the Subcommittee on Energy and Mineral Resources, Committee on
Natural Resources, House of Representatives:
United States Government Accountability Office:
GAO:
For Release on Delivery:
Expected at 10:00 a.m. EST:
Thursday February 26, 2009:
Hardrock Mining:
Information on Types of State Royalties, Number of Abandoned Mines, and
Financial Assurances on BLM Land:
Statement of Robin M. Nazzaro, Director:
Natural Resources and Environment:
GAO-09-429T:
GAO Highlights:
Highlights of GAO-09-429T, a testimony before the Subcommittee on
Energy and Mineral Resources, Committee on Natural Resources, House of
Representatives.
Why GAO Did This Study:
The General Mining Act of 1872 helped open the West by allowing
individuals to obtain exclusive rights to mine billions of dollars
worth of gold, silver, and other hardrock (locatable) minerals from
federal lands without having to pay a federal royalty. However, western
states charge royalties so that they share in the proceeds from various
hardrock minerals extracted from their lands. For years, some mining
operators did not reclaim land used in their mining operations,
creating environmental and physical safety hazards. To curb further
growth in the number of abandoned hardrock mines on federal lands, in
1981, the Department of the Interior‘s Bureau of Land Management (BLM)
began requiring mining operators to reclaim BLM land disturbed by these
operations, and in 2001 began requiring operators to provide financial
assurances to cover reclamation costs before they began exploration or
mining operations.
This testimony focuses on the (1) royalties states charge, (2) number
of abandoned hardrock mine sites and hazards, and (3) value and
coverage of financial assurances operators use to guarantee reclamation
costs. It is based on two GAO reports: Hardrock Mining: Information on
Abandoned Mines and Value and Coverage of Financial Assurances on BLM
Land, [hyperlink, http://www.gao.gov/products/GAO-08-574T] (Mar. 12,
2008) and Hardrock Mining: Information on State Royalties and Trends in
Imports and Exports, [hyperlink,
http://www.gao.gov/products/GAO-08-849R] (July 21, 2008).
What GAO Found:
Twelve western states, including Alaska, that GAO reviewed assess
royalties on hardrock mining operations on state lands. In addition,
each of these states, except Oregon, assesses taxes that function like
a royalty, which GAO refers to as functional royalties, on the hardrock
mining operations on private, state, and federal lands. The royalties
the states assess often differ depending on land ownership and the
mineral being extracted. For example, for private mining operations
conducted on federal, state, or private land, Arizona assesses a
functional royalty of 1.25 percent of net revenue on gold mining
operations, and an additional royalty of at least 2 percent of gross
value for gold mining operations on state lands. The actual amount
assessed for a particular mine may depend not only on the type of
royalty, its rate, and exclusions, but also on other factors, such as
the mine‘s location relative to markets.
Over the past 10 years, estimates of the number of abandoned hardrock
mine sites in the 12 western states reviewed, as well as South Dakota,
have varied widely, in part because there is no generally accepted
definition for a hardrock mine site. Using a consistent definition that
GAO provided, these states reported the number of abandoned sites in
their states. On the basis of these data, GAO estimated that there are
at least 161,000 abandoned hardrock mine sites in these states, and
these sites have at least 332,000 features that may pose physical
safety hazards and at least 33,000 sites that have degraded the
environment.
According to BLM data, as of November 2007, hardrock mining operators
had provided financial assurances worth approximately $982 million to
guarantee reclamation costs for 1,463 hardrock mining operations on BLM
land and 52 of these operations had financial assurances valued at
about $28 million less than needed to fully cover estimated reclamation
costs. However, GAO determined that the assurances for these 52
operations should be more accurately reported as about $61 million less
than needed for full coverage. The $33 million difference between GAO‘s
and BLM‘s estimated shortfalls occurs because BLM calculated its
shortfall by comparing the total value of financial assurances in place
with the total estimated reclamation costs. This approach effectively
offsets the shortfalls in some operations with the higher than needed
financial assurances of others. However, the financial assurances that
are greater than the amount required for an operation cannot be
transferred to an operation with inadequate financial assurances. In
contrast, GAO totaled the difference between the financial assurances
in place for an operation and the financial assurances needed for that
operation to determine the actual shortfall for each of the 52
operations for which BLM had determined that financial assurances were
inadequate. BLM has taken steps to correct the reporting problem GAO
identified.
To view the full product, including the scope and methodology, click on
[hyperlink, http://www.gao.gov/products/GAO-09-429T]. For more
information, contact Robin M. Nazzaro at (202) 512-3841 or
nazzaror@gao.gov.
[End of section]
Mr. Chairman and Members of the Committee:
I am pleased to be here today to discuss our 2008 work on several
hardrock mining issues that are central to the debate on reforming the
General Mining Act of 1872: royalties, abandoned mines, and financial
assurances.[Footnote 1]
As you know, since the passage of the General Mining Act of 1872, mine
operators have extracted billions of dollars worth of silver, gold,
copper, and other hardrock (locatable) minerals from federal lands
without having to pay a royalty.[Footnote 2] Most of these lands are
managed by the Department of the Interior's Bureau of Land Management
(BLM) and the U.S. Department of Agriculture's Forest Service.
Assessing a royalty on hardrock minerals would ensure that the public
is compensated for hardrock minerals extracted from federal lands, as
more recently enacted laws require for oil, gas, and other minerals.
The vast majority of the federal lands where hardrock mining operations
occur are in 12 western states, including Alaska (hereafter referred to
as the 12 western states).[Footnote 3] These western states have
statutes governing hardrock mining operations on lands in their state.
However, unlike the federal government, these states charge royalties
that allow them to share in the proceeds from hardrock minerals
extracted from state-owned lands. In addition, most of these states
charge taxes, such as severance taxes, mine license taxes, or resource
excise taxes, on hardrock mining operations that occur on private,
state, and federal lands. For the purposes of this report, we use the
term "functional royalty" to refer to taxes that function like a
royalty in that they permit the state to share in the value of the
mine's production. Although states may use similar names for functional
royalties they assess, there can be wide variations in their forms and
rates.
In addition to not requiring hardrock mining operators to pay
royalties, prior to 1981, BLM did not require them to reclaim the
federal land they used. Consequently, hardrock mining operators have
left thousands of acres of federal land disturbed through mineral
exploration, mining, and mineral processing. Some of these disturbed
abandoned mine lands pose serious environmental and physical safety
hazards. These hazards include environmental hazards such as toxic or
acidic water that contaminates soil and groundwater or physical safety
hazards such as open or concealed shafts, unstable or decayed mine
structures, or explosives. Cleanup costs for these abandoned mines vary
by type and size of the operation.[Footnote 4]
To curb further growth in the number of abandoned hardrock mines, BLM
issued regulations, effective in 1981, that required all mining
operators to reclaim BLM land disturbed by hardrock mining. In 2001,
BLM began requiring all mining operators to provide financial
assurances before beginning exploration or mining operations on BLM
land. These financial assurances must cover all of the estimated
reclamation costs for a given hardrock operation. Having adequate
financial assurances to pay reclamation costs for BLM land disturbed by
hardrock operations is critical to ensuring that the land is reclaimed
if the mining operators fail to do so. In June 2005, we reported that
some current hardrock operations on BLM land do not have financial
assurances, and some have no or outdated reclamation plans and/or cost
estimates on which the financial assurances should be based.[Footnote
5]
My testimony today focuses on the (1) royalties states currently charge
on hardrock mining operations, (2) the number of abandoned hardrock
mine sites and number of associated hazards, and (3) value and coverage
of the financial assurances operators use to guarantee reclamation
costs on lands managed by BLM.
To address these objectives, we interviewed staff at BLM and the Forest
Service; examined agency documents and data; and reviewed relevant
legislation and regulations. To identify the types of royalties,
including functional royalties that the 12 western states assess on
hardrock mining operations, we reviewed state statutes and regulations
pertaining to royalties on hardrock mining operations. To aid in
understanding general patterns in state royalties, we consulted
academic and industry sources and then we categorized each royalty
according to how it is assessed. To assess the number of abandoned
hardrock mine sites, we asked the 12 western states and South Dakota--
which have significant numbers of abandoned hardrock mining operations-
-to determine the number of these mine sites in their states. We asked
the states to use a consistent definition, which we provided, in
estimating the number of abandoned mine sites and associated features
that pose a significant hazard to public health and safety and the
number of sites that cause environmental degradation.[Footnote 6] We
specified that states should only include hardrock (also known as
locatable), non-coal sites in this estimate. From these data, we
estimated the number of features that pose physical safety hazards and
the number of sites with environmental hazards in the 12 western
states. We also summarized six selected studies by federal agencies and
organizations to document differences in estimates, definitions, and
methodologies. To assess the value and coverage of financial assurances
in place to guarantee reclamation, we reviewed BLM's Bond Review
Report. This report provides information on financial assurances for 11
western states.[Footnote 7] This Bond Review Report is generated from
BLM's automated information system--LR 2000. Although the LR2000 data
are of undetermined reliability, our limited assessment of these data
indicates that they are appropriate as used and presented in this
testimony, and we do not base any conclusions or recommendations on
them. This testimony is based on prior GAO reports whose work was
conducted in accordance with generally accepted government auditing
standards.[Footnote 8] Those standards require that we plan and perform
the audit to obtain sufficient, appropriate evidence to provide a
reasonable basis for our findings and conclusions based on our audit
objectives. We believe that the evidence obtained provides a reasonable
basis for our findings and conclusions based on our audit objectives.
The 12 Western States Assess Multiple Types of Royalties, Including
Functional Royalties, on Mining Operations:
Twelve western states assess royalties on the hardrock mining
operations on state lands. In addition, each of these states, except
Oregon, assesses taxes that function like a royalty, which we refer to
as functional royalties, on the hardrock mining operations on private,
state, and federal lands. To aid in the understanding of royalties,
including functional royalties, the royalties are grouped as follows:
* Unit-based is typically assessed as a dollar rate per quantity or
weight of mineral produced or extracted, and does not allow for
deductions of mining costs.
* Gross revenue is typically assessed as a percentage of the value of
the mineral extracted and does not allow for deductions of mining
costs.
* Net smelter returns is assessed as a percentage of the value of the
mineral, but with deductions allowed for costs associated with
transporting and processing the mineral (typically referred to as mill,
smelter, or treatment costs); however, costs associated with extraction
of the mineral are not deductible.
* Net proceeds is assessed as a percentage of the net proceeds (or net
profit) of the sale of the mineral with deductions for a broad set of
mining costs. The particular deductions allowed vary widely from state
to state, but may include extraction costs, processing costs,
transportation costs, and administrative costs, such as for capital,
marketing, and insurance.[Footnote 9]
Royalties, including functional royalties, often differ depending on
land ownership and the mineral being extracted, as the following
illustrates:
* For private mining operations conducted on federal, state, or private
lands, Arizona assesses a net proceeds functional royalty of 1.25
percent on gold mining operations, and an additional gross revenue
royalty of at least 2 percent for gold mining operations on state
lands.
* Nine of the 12 states assess different types of royalties for
different types of minerals. For example, Wyoming employs three
different functional royalties for all lands: (1) net smelter returns
for uranium, (2) a different net smelter returns for trona--a mineral
used in the production of glass, and (3) gross revenue for all other
minerals.
Furthermore, the royalties the states assess often differ in the
allowable exclusions, deductions, and limitations.[Footnote 10] For
example, in Colorado, a functional royalty on metallic mining excludes
gross incomes below $19 million,[Footnote 11] whereas in Montana a
functional royalty on metallic mining is applied on all mining
operations after the first $250,000 of revenue.[Footnote 12]
Finally, the actual amount assessed for a particular mine may depend
not only on the type of royalty, its rate, and exclusions, but also on
such factors as the mineral's processing requirements, mineral markets,
mine efficiency, and mine location relative to markets, among other
factors.
Table 1 shows the types of royalties, including functional royalties,
that the 12 western states assess on all lands, including federal,
state, and private lands, as well as the royalties assessed only on
state lands.
Table 1: Types of Royalties, Including Functional Royalties, Assessed
on Hardrock Mining Operations in Western States, by State:
State: Alaska: State lands;
Unit-based: [Empty];
Gross revenue: [Empty];
Net smelter returns: [Empty];
Net proceeds: [Check].
State: Alaska: All lands;
Unit-based: [Empty];
Gross revenue: [Empty];
Net smelter returns: [Empty];
Net proceeds: [Check].
State: Arizona: State lands;
Unit-based: [Empty];
Gross revenue: [Check];
Net smelter returns: [Empty];
Net proceeds: [Empty].
State: Arizona: All lands;
Unit-based: [Empty];
Gross revenue: [Check];
Net smelter returns: [Empty];
Net proceeds: [Check].
State: California: State lands;
Unit-based: [Empty];
Gross revenue: [Check];
Net smelter returns: [Empty];
Net proceeds: [Check].
State: California: All lands;
Unit-based: [Check];
Gross revenue: [Empty];
Net smelter returns: [Empty];
Net proceeds: [Empty].
State: Colorado: State lands;
Unit-based: [Empty];
Gross revenue: [Check];
Net smelter returns: [Empty];
Net proceeds: [Check].
State: Colorado: All lands;
Unit-based: [Check];
Gross revenue: [Check];
Net smelter returns: [Empty];
Net proceeds: [Empty].
State: Idaho: State lands;
Unit-based: [Empty];
Gross revenue: [Check];
Net smelter returns: [Check];
Net proceeds: [Empty].
State: Idaho: All lands;
Unit-based: [Empty];
Gross revenue: [Empty];
Net smelter returns: [Empty];
Net proceeds: [Check].
State: Montana: State lands;
Unit-based: [Empty];
Gross revenue: [Check];
Net smelter returns: [Check];
Net proceeds: [Empty].
State: Montana: All lands;
Unit-based: [Check];
Gross revenue: [Empty];
Net smelter returns: [Check];
Net proceeds: [Empty].
State: Nevada[A]: State lands;
Unit-based: [Empty];
Gross revenue: [Empty];
Net smelter returns: [Empty];
Net proceeds: [Empty].
State: Nevada[A]: All lands;
Unit-based: [Empty];
Gross revenue: [Empty];
Net smelter returns: [Empty];
Net proceeds: [Check].
State: New Mexico: State lands;
Unit-based: [Empty];
Gross revenue: [Check];
Net smelter returns: [Check];
Net proceeds: [Empty].
State: New Mexico: All lands;
Unit-based: [Empty];
Gross revenue: [Check];
Net smelter returns: [Check];
Net proceeds: [Check].
State: Oregon: State lands;
Unit-based: [Check];
Gross revenue: [Check];
Net smelter returns: [Empty];
Net proceeds: [Empty].
State: Oregon: All lands;
Unit-based: [Empty];
Gross revenue: [Empty];
Net smelter returns: [Empty];
Net proceeds: [Empty].
State: Utah: State lands;
Unit-based: [Empty];
Gross revenue: [Check];
Net smelter returns: [Empty];
Net proceeds: [Empty].
State: Utah: All lands;
Unit-based: [Empty];
Gross revenue: [Empty];
Net smelter returns: [Empty];
Net proceeds: [Check].
State: Washington: State lands;
Unit-based: [Empty];
Gross revenue: [Check];
Net smelter returns: [Empty];
Net proceeds: [Empty].
State: Washington: All lands;
Unit-based: [Empty];
Gross revenue: [Check];
Net smelter returns: [Empty];
Net proceeds: [Empty].
State: Wyoming: State lands;
Unit-based: [Check];
Gross revenue: [Check];
Net smelter returns: [Empty];
Net proceeds: [Empty].
State: Wyoming: All lands;
Unit-based: [Empty];
Gross revenue: [Check];
Net smelter returns: [Check];
Net proceeds: [Empty].
Total: State lands;
Unit-based: 2;
Gross revenue: 10;
Net smelter returns: 3;
Net proceeds: 3.
Total: All Lands;
Unit-based: 3;
Gross revenue: 5;
Net smelter returns: 3;
Net proceeds: 6.
Source: GAO analysis of state statutes and regulations.
Note: Sales and use taxes are excluded. Royalties often apply only to
specific minerals.
[A] Nevada also has royalty on hardrock mining operations on state
lands, however it is unlike these four categories of royalties.
[End of table]
Prior State Estimates of the Number of Abandoned Hardrock Mine Sites
Vary Widely, but Our Data Show at Least 161,000 Sites, with Many Posing
Hazards:
It has been difficult to determine the number of abandoned hardrock
mine sites in the 12 western states, and South Dakota, in part because
there is no generally accepted definition for a hardrock mine site. The
six studies we reviewed relied on the different definitions that the
states used, and estimates varied widely from study to study.[Footnote
13]
Furthermore, BLM and the Forest Service have had difficulty determining
the number of abandoned hardrock mines on their lands. In September
2007, the agencies reported an estimated 100,000 abandoned mine sites,
[Footnote 14] but we found problems with this estimate. For example,
the Forest Service had reported that it had approximately 39,000
abandoned hardrock mine sites on its lands. However, this estimate
includes a substantial number of non-hardrock mines, such as coal
mines, and sites that are not on Forest Service land. At our request,
the Forest Service provided a revised estimate of the number of
abandoned hardrock mine sites on its lands, excluding coal or other non-
hardrock sites. According to this estimate, the Forest Service may have
about 29,000 abandoned hardrock mine sites on its lands. That said, we
still have concerns about the accuracy of the Forest Service's recent
estimate because it identified a large number of sites with
"undetermined" ownership, and therefore these sites may not all be on
Forest Service lands.
BLM has also acknowledged that its estimate of abandoned hardrock mine
sites on its lands may not be accurate because it includes sites on its
lands that are of unknown or mixed ownership (state, private, and
federal) and a few coal sites. In addition, BLM officials said that the
agency's field offices used a variety of methods to identify sites in
the early 1980s, and the extent and quality of these efforts varied
greatly. For example, they estimated that only about 20 percent of BLM
land has been surveyed in Arizona. Furthermore, BLM officials said that
the agency focuses more on identifying sites closer to human habitation
and recreational areas than on identifying more remote sites, such as
in the desert. Table 2 shows the Forest Service's and BLM's most recent
available estimates of abandoned mine sites on their lands.
Table 2: BLM's and the Forest Service's Most Currently Available
Estimated Number of Abandoned Mines on Their Lands, by State:
State: Alaska;
Estimated number of abandoned mine sites on BLM land[A]: 6,000;
Estimated number of abandoned mine sites on Forest Service land[B]:
830;
Total: 6,830.
State: Arizona;
Estimated number of abandoned mine sites on BLM land[A]: 22,000;
Estimated number of abandoned mine sites on Forest Service land[B]:
2,183;
Total: 24,183.
State: California;
Estimated number of abandoned mine sites on BLM land[A]: 11,500;
Estimated number of abandoned mine sites on Forest Service land[B]:
6,248;
Total: 17,748.
State: Colorado;
Estimated number of abandoned mine sites on BLM land[A]: 2,500;
Estimated number of abandoned mine sites on Forest Service land[B]:
2,605;
Total: 5,105.
State: Idaho;
Estimated number of abandoned mine sites on BLM land[A]: 400;
Estimated number of abandoned mine sites on Forest Service land[B]:
4,635;
Total: 5,035.
State: Montana;
Estimated number of abandoned mine sites on BLM land[A]: 1,016;
Estimated number of abandoned mine sites on Forest Service land[B]:
3,899;
Total: 4,915.
State: Nevada;
Estimated number of abandoned mine sites on BLM land[A]: 9,000;
Estimated number of abandoned mine sites on Forest Service land[B]:
1,613;
Total: 10,613.
State: New Mexico;
Estimated number of abandoned mine sites on BLM land[A]: 3,000;
Estimated number of abandoned mine sites on Forest Service land[B]:
989;
Total: 3,989.
State: Oregon;
Estimated number of abandoned mine sites on BLM land[A]: 3,400;
Estimated number of abandoned mine sites on Forest Service land[B]:
2,427;
Total: 5,827.
State: South Dakota;
Estimated number of abandoned mine sites on BLM land[A]: Not reported;
Estimated number of abandoned mine sites on Forest Service land[B]:
503;
Total: 503.
State: Utah;
Estimated number of abandoned mine sites on BLM land[A]: 10,000;
Estimated number of abandoned mine sites on Forest Service land[B]:
697;
Total: 10,697.
State: Washington;
Estimated number of abandoned mine sites on BLM land[A]: Not reported;
Estimated number of abandoned mine sites on Forest Service land[B]:
1,956;
Total: 1,956.
State: Wyoming;
Estimated number of abandoned mine sites on BLM land[A]: 2,000;
Estimated number of abandoned mine sites on Forest Service land[B]:
336;
Total: 2,336.
State: Total;
Estimated number of abandoned mine sites on BLM land[A]: 70,816;
Estimated number of abandoned mine sites on Forest Service land[B]:
28,921;
Total: 99,737.
Source: GAO analysis of BLM and Forest Service data.
[A] These data are from BLM's Abandoned Mine Land Inventory and
Remediation Report, BLM/NV/GI-97/004, November 1996.
[B] These data are from the U.S. Geological Survey's analysis of data
in the Mineral Resources Data System (of which the Mineral Availability
System/Mineral Industry Locator System is now a part), revised by the
Forest Service as of November 2007.
[End of table]
To estimate abandoned hardrock mine sites in the 12 western states and
South Dakota, we developed a standard definition for these mine sites.
In developing this definition, we consulted with mining experts at the
National Association of Abandoned Mine Land Programs; the Interstate
Mining Compact Commission; and the Colorado Department of Natural
Resources, Division of Reclamation, Mining and Safety, Office of Active
and Inactive Mines. We defined an abandoned hardrock mine site as a
site that includes all associated facilities, structures, improvements,
and disturbances at a distinct location associated with activities to
support a past operation, including prospecting, exploration,
uncovering, drilling, discovery, mine development, excavation,
extraction, or processing of mineral deposits locatable under the
general mining laws. We also asked the states to estimate the number of
features at these sites that pose physical safety hazards and the
number of sites with environmental degradation.
Using this definition, states reported to us the number of abandoned
sites in their states, and we calculated that there are at least
161,000 abandoned hardrock mine sites in their states. At these sites,
on the basis of state data, we estimated that at least 332,000 features
may pose physical safety hazards, such as open shafts or unstable or
decayed mine structures. Furthermore, we estimated that at least 33,000
sites have degraded the environment, by, for example, contaminating
surface and ground water or leaving arsenic-contaminated tailings
piles.[Footnote 15] Table 3 shows our estimate of the number of
abandoned hardrock mine sites in the 12 western states and South
Dakota, the number of features that pose significant public health and
safety hazards, and the number of sites with environmental degradation.
Table 3: GAO's Estimate of the Number of Abandoned Hardrock Mine Sites,
Features That Pose Significant Public and Safety Hazards, and Sites
With Environmental Degradation, in 12 Western States and South Dakota,
as of October 1, 2007:
State: Alaska;
Estimated number of abandoned hardrock (non-coal, locatable) mine
sites: 469;
Estimated number of features that pose a significant hazard to public
health and safety: 235;
Estimated number of sites with environmental degradation: 99.
State: Arizona;
Estimated number of abandoned hardrock (non-coal, locatable) mine
sites: 50,000;
Estimated number of features that pose a significant hazard to public
health and safety: 59,400;
Estimated number of sites with environmental degradation: 9,900.
State: California;
Estimated number of abandoned hardrock (non-coal, locatable) mine
sites: 47,084;
Estimated number of features that pose a significant hazard to public
health and safety: 164,795;
Estimated number of sites with environmental degradation: 5,200.
State: Colorado;
Estimated number of abandoned hardrock (non-coal, locatable) mine
sites: 7,300;
Estimated number of features that pose a significant hazard to public
health and safety: 17,000;
Estimated number of sites with environmental degradation: 150.
State: Idaho;
Estimated number of abandoned hardrock (non-coal, locatable) mine
sites: 7,100;
Estimated number of features that pose a significant hazard to public
health and safety: Not reported;
Estimated number of sites with environmental degradation: Not reported.
State: Montana;
Estimated number of abandoned hardrock (non-coal, locatable) mine
sites: 6,000;
Estimated number of features that pose a significant hazard to public
health and safety: 6,000-22,000;
Estimated number of sites with environmental degradation: 331.
State: Nevada;
Estimated number of abandoned hardrock (non-coal, locatable) mine
sites: 16,000;
Estimated number of features that pose a significant hazard to public
health and safety: 51,000;
Estimated number of sites with environmental degradation: 150.
State: New Mexico;
Estimated number of abandoned hardrock (non-coal, locatable) mine
sites: 800;
Estimated number of features that pose a significant hazard to public
health and safety: 15,000;
Estimated number of sites with environmental degradation: 200-300.
State: Oregon;
Estimated number of abandoned hardrock (non-coal, locatable) mine
sites: 3,823;
Estimated number of features that pose a significant hazard to public
health and safety: Not reported;
Estimated number of sites with environmental degradation: 140.
State: South Dakota;
Estimated number of abandoned hardrock (non-coal, locatable) mine
sites: 950;
Estimated number of features that pose a significant hazard to public
health and safety: Not reported;
Estimated number of sites with environmental degradation: Not reported.
State: Utah;
Estimated number of abandoned hardrock (non-coal, locatable) mine
sites: 17,000;
Estimated number of features that pose a significant hazard to public
health and safety: 17,000;
Estimated number of sites with environmental degradation: 17,000.
State: Washington;
Estimated number of abandoned hardrock (non-coal, locatable) mine
sites: 3,629;
Estimated number of features that pose a significant hazard to public
health and safety: 1,608;
Estimated number of sites with environmental degradation: 50.
State: Wyoming;
Estimated number of abandoned hardrock (non-coal, locatable) mine
sites: 956;
Estimated number of features that pose a significant hazard to public
health and safety: 519;
Estimated number of sites with environmental degradation: 437.
State: Total;
Estimated number of abandoned hardrock (non-coal, locatable) mine
sites: 161,111;
Estimated number of features that pose a significant hazard to public
health and safety: 332,557-348,557;
Estimated number of sites with environmental degradation: 33,657-
33,757.
Source: GAO analysis of state-reported data.
Notes: While states used our definition to provide data on the
estimated number of mine sites and features, these data have two key
limitations: (1) the methods and sources used to identify and confirm
abandoned sites and hazardous features vary substantially by state and
(2) states have markedly different data systems and requirements for
recording data on abandoned mines. For complete information on these
limitations, see [hyperlink, http://www.gao.gov/products/GAO-08-574T].
[End of table]
BLM Estimates That Operators Have Provided About $982 Million in
Financial Assurances--About $61 Million Less Than Needed to Cover
Estimated Reclamation Costs:
As of November 2007, hardrock mining operators had provided financial
assurances valued at approximately $982 million to guarantee the
reclamation cost for 1,463 hardrock mining operations on BLM land in 11
western states, according to BLM's Bond Review Report.[Footnote 16] The
report also indicates that 52 of the 1,463 hardrock mining operations
had inadequate financial assurances--about $28 million less than needed
to fully cover estimated reclamation costs. We determined, however,
that the financial assurances for these 52 operations should be more
accurately reported as about $61 million less than needed to fully
cover estimated reclamation costs. Table 4 shows total operations by
state, the number of operations with inadequate financial assurances,
the financial assurances required, BLM's calculation of the shortfall
in assurances, and our estimate of the shortfall, as of November 2007.
Table 4: Total Hardrock Mining Operations, Operations with Inadequate
Financial Assurances, Financial Assurances Required, and Difference
Between Requirements and Actual Value, by State, as of November 2007:
State: Arizona;
Total operations: 107;
Operations with inadequate financial assurances: 2;
Financial assurances required: $7,689,394;
BLM's difference between current and required value of financial
assurances: ($49,583);
GAO's difference between current and required value of financial
assurances: ($101,870).
State: California;
Total operations: 95;
Operations with inadequate financial assurances: 4;
Financial assurances required: $24,530,439;
BLM's difference between current and required value of financial
assurances: $1,593,013;
GAO's difference between current and required value of financial
assurances: ($439,669).
State: Colorado;
Total operations: 250;
Operations with inadequate financial assurances: 4;
Financial assurances required: $1,605,574;
BLM's difference between current and required value of financial
assurances: ($170,291);
GAO's difference between current and required value of financial
assurances: ($167,730).
State: Idaho;
Total operations: 46;
Operations with inadequate financial assurances: 1;
Financial assurances required: $1,556,705;
BLM's difference between current and required value of financial
assurances: ($13,000);
GAO's difference between current and required value of financial
assurances: ($13,000).
State: Montana;
Total operations: 41;
Operations with inadequate financial assurances: 0;
Financial assurances required: $67,478,064;
BLM's difference between current and required value of financial
assurances: $1,200;
GAO's difference between current and required value of financial
assurances: 0.
State: New Mexico;
Total operations: 28;
Operations with inadequate financial assurances: 0;
Financial assurances required: $1,066,735;
BLM's difference between current and required value of financial
assurances: 0;
GAO's difference between current and required value of financial
assurances: 0.
State: Nevada;
Total operations: 579;
Operations with inadequate financial assurances: 28;
Financial assurances required: $844,953,161;
BLM's difference between current and required value of financial
assurances: ($33,667,684);
GAO's difference between current and required value of financial
assurances: ($47,739,814).
State: Oregon;
Total operations: 60;
Operations with inadequate financial assurances: 4;
Financial assurances required: $366,773;
BLM's difference between current and required value of financial
assurances: $47,327;
GAO's difference between current and required value of financial
assurances: ($1,227).
State: Utah;
Total operations: 150;
Operations with inadequate financial assurances: 5;
Financial assurances required: $12,247,645;
BLM's difference between current and required value of financial
assurances: ($2,682,539);
GAO's difference between current and required value of financial
assurances: ($2,769,802).
State: Washington;
Total operations: 4;
Operations with inadequate financial assurances: 0;
Financial assurances required: $49,975;
BLM's difference between current and required value of financial
assurances: 0;
GAO's difference between current and required value of financial
assurances: 0.
State: Wyoming;
Total operations: 103;
Operations with inadequate financial assurances: 4;
Financial assurances required: $47,934,110;
BLM's difference between current and required value of financial
assurances: $7,103,396;
GAO's difference between current and required value of financial
assurances: ($9,518,877).
State: Total;
Total operations: 1,463;
Operations with inadequate financial assurances: 52;
Financial assurances required: $1,009,478,575;
BLM's difference between current and required value of financial
assurances: ($27,838,161);
GAO's difference between current and required value of financial
assurances: ($60,751,989).
Source: GAO analysis of BLM's Bond Review Report.
[End of table]
The $33 million difference between our estimated shortfall of nearly
$61 million and BLM's estimated shortfall of nearly $28 million occurs
because BLM calculated its shortfall by comparing the total value of
financial assurances in place with the total estimated reclamation
costs. This calculation approach has the effect of offsetting the
shortfalls in some operations with the greater than required financial
assurances of other operations. However, the financial assurances that
are greater than the amount required for an operation cannot be
transferred to an operation with inadequate financial assurances. In
contrast, we totaled the difference between the financial assurance in
place for an operation and the financial assurances needed for that
operation to determine the actual shortfall for each of the 52
operations for which BLM had determined that financial assurances were
inadequate.
BLM's approach to determining the adequacy of financial assurances is
not useful because it does not clearly lay out the extent to which
financial assurances are inadequate. For example, in California, BLM
reported that, statewide, the financial assurances in place were $1.5
million greater than required as of November 2007, suggesting
reclamation costs are being more than fully covered. However, according
to our analysis of only those California operations with inadequate
financial assurances, the financial assurances in place were nearly
$440,000 less than needed to fully cover reclamations costs. BLM
officials agreed that it would be valuable for the Bond Review Report
to report the dollar value of the difference between financial
assurances in place and required for those operations where financial
assurances are inadequate and have taken steps to modify LR2000.
BLM officials said that financial assurances may appear inadequate in
the Bond Review Report when:
* expansions or other changes in the operation have occurred, thus
requiring an increase in the amount of the financial assurance;
* BLM's estimate of reclamation costs has increased and there is a
delay between when BLM enters the new estimate into LR2000 and when the
operator provides the additional bond amount; and:
* BLM has delayed updating its case records in LR2000.
Conversely, hardrock mining operators may have financial assurances
greater than required for a number of reasons; for example, they may
increase their financial assurances because they anticipate expanding
their hardrock operations.
In addition, according to the Bond Review Report, there are about 2.4
times as many notice-level operations--generally, operations that cause
surface disturbance on 5 acres or less--as there are plan-level
operations on BLM land--generally operations that disturb more than 5
acres (1,033 notice-level operations and 430 plan-level operations).
However, about 99 percent of the value of financial assurances is for
plan-level operations, while 1 percent of the value is for notice-level
operations. While financial assurances were inadequate for both notice-
and plan-level operations, a greater percentage of plan-level
operations had inadequate financial assurances than did notice-level
operations--6.7 percent and 2.2 percent, respectively. Finally, over
one-third of the number of all hardrock operations and about 84 percent
of the value of all financial assurances are for hardrock mining
operations located in Nevada.
Mr. Chairman, this concludes my prepared statement. I would be happy to
respond to any questions that you or Members of the Committee may have.
Contact and Staff Acknowledgments:
Contact points for our Offices of Congressional Relations and Public
Affairs may be found on the last page of this testimony. For further
information about this testimony, please contact Robin M. Nazzaro,
Director, Natural Resources and Environment (202) 512-3841 or
Nazzaror@gao.gov. Key contributors to this testimony were Andrea
Wamstad Brown (Assistant Director); Elizabeth Beardsley; Casey L.
Brown; Kristen Sullivan Massey; Rebecca Shea; and Carol Herrnstadt
Shulman.
[End of section]
Footnotes:
[1] GAO, Hardrock Mining: Information on State Royalties and Trends in
Mineral Import and Exports, [hyperlink,
http://www.gao.gov/products/GAO-08-849R] (Washington, D.C.: July 21,
2008); and GAO, Hardrock Mining: Information on Abandoned Mines and
Value and Coverage of Financial Assurances on BLM Land, [hyperlink,
http://www.gao.gov/products/GAO-08-574T] (Washington, D.C.: Mar. 12,
2008).
[2] Under U.S. mining laws, minerals are classified as locatable,
leasable, or saleable. Locatable minerals include those minerals that
are not leasable or saleable, for example, copper, lead, zinc,
magnesium, gold, silver, and uranium. Only locatable minerals continue
to be "claimed" under the Mining Act. For the purposes of this report,
we use the term "hardrock minerals" as a synonym for "locatable
minerals." Leasable minerals include, for example, oil, gas, and coal.
The Mineral Leasing Act of 1920, 41 Stat. 437 (codified at 30 U.S.C. §
181) created a leasing system for coal, gas, oil and other fuels, and
chemical minerals. Saleable minerals include, for example, common sand,
stone, and gravel. In 1955, the Multiple Use Mining Act of 1955, 69
Stat. 367 (codified at 30 U.S.C. § 601) removed common varieties of
sand, stone, and gravel from development under the Mining Act.
[3] The other 11 western states are Arizona, California, Colorado,
Idaho, Montana, Nevada, New Mexico, Oregon, Utah, Washington, and
Wyoming.
[4] For purposes of this testimony, cleanup refers to the mitigation of
environmental impacts at mine sites, such as contaminated water, and
the reclamation of land disturbed by hardrock operations.
[5] GAO, Hardrock Mining: BLM Needs to Better Manage Financial
Assurances to Guarantee Coverage of Reclamation Costs, [hyperlink,
http://www.gao.gov/products/GAO-05-377] (Washington, D.C.: June 20,
2005).
[6] We defined an abandoned hardrock mine site as all associated
facilities, structures, improvements, and disturbances at a distinct
location associated with activities to support a past operation under
the general mining laws.
[7] Data for Alaska are not maintained in LR2000 and not reported in
the Bond Review Report.
[8] [hyperlink, http://www.gao.gov/products/GAO-08-849R] and
[hyperlink, http://www.gao.gov/products/GAO-08-574T].
[9] For a full discussion of the definition and formula for each type
of royalty, see [hyperlink, http://www.gao.gov/products/GAO-08-849R].
[10] For a complete listing of exclusions, deductions, and limitations,
see [hyperlink, http://www.gao.gov/products/GAO-08-849R], enclosure II,
table 3.
[11] Gross income is the value of ore immediately after its removal
from the mine and does not include any value added subsequent to mining
by any treatment processes.
[12] Gross value of product, less first $250,000; Gross value is the
receipts received from the sale of concentrates or metals extracted
from mines or recovered from the smelting, milling, reduction, or
treatment of such ores. Receipts received is defined as the payment
received, less allowable deductions.
[13] For a full discussion of these six studies, see [hyperlink,
http://www.gao.gov/products/GAO-08-574T], appendix III.
[14] BLM and Forest Service, Abandoned Mine Lands: A Decade of Progress
Reclaiming Hardrock Mines (September 2007).
[15] Tailings are a combination of fluid and rock materials that are
left behind after the minerals are extracted. Tailings are often
disposed of in a nearby pile.
[16] Data for Alaska are not maintained in LR2000 and not reported in
the Bond Review Report.
[End of section]
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