Mining royalties, another bad, job-killing idea from Raul Grijalva

grijalva phatSouthern Arizona Representative Raul Grijalva is pushing another anti-mining bill, this one inappropriately named the “Abandoned Mine Cleanup and Taxpayer Fairness Act.” (See full text here.)

A major provision of this stupid bill is the imposition of a 12.5% gross income royalty on minerals produced from mining claims. Mr. Grijalva argues that the oil and gas industry pays such a royalty, so mining should also. Grijalva also contends that the royalty would garner more money for the federal government. Not so, as I will show below.

Grijalva’s argument by analogy is invalid because the oil and gas industry and the mining industry are fundamentally different. Mining requires a very expensive, up-front capital investment; the oil and gas industry doesn’t. Secondly, the oil and gas industry enjoys a 12.5% depletion allowance on taxes to spur more exploration; the mining industry doesn’t.

Gross royalties, as proposed by Grijalva, are charged on the mineral value regardless of the cost of extraction. Net proceeds royalties are a tax on profit.. Both types of royalties reduce corporate profit, if any, and therefore would reduce income tax payments to government and hence to the taxpayers. The extra dollars Grijalva sees are illusionary.

There is a more basic reason for not imposing royalties: they reduce the amount of minerals that can be extracted from a deposit, thereby depriving us of mineral wealth that would otherwise be available to us. Here is why:

After the usually very expensive exploration phase of a mineral deposit is concluded, and before the even more expensive capital construction costs, mining engineers do a feasibility study to determine how much of the mineral deposit is ore, that is, how much can be extracted at a profit. The mineralization that cannot be extracted at a profit is waste. The relationship between ore, waste, and cost is not linear. For our porphyry copper deposits and most other mines, there is much more low grade (or lower value) rock than high grade rock. Therefore, any increase in cost, such as a royalty, makes a disproportionally larger amount of rock unprofitable to mine. And that deprives us of use of a valuable resource. For certain deposits which are mostly low grade, the additional cost of a royalty would preclude profitable mining at all. Maybe that’s Grijalva’s goal.

Some other recent “bad Acts” by Grijalva include:

The “Southern Arizona Public Lands Protection Act of 2013,” proposes to ban new mining claims on all National Forest and Bureau of Land Management lands in Pima and Santa Cruz Counties. Grijalva has introduced similar bills every year since 2007. This would preclude almost all new mineral exploration and production in Southern Arizona. We don’t really need all those jobs, economic development, and tax payments, do we?

Grijalva’s “Grand Canyon Watershed Protection Act” would make permanent the “temporary” withdrawal (for 20 years) of one million acres near the Grand Canyon to prevent uranium mining under the pretext that the Colorado River could become contaminated. Uranium mining on the Colorado Plateau near the Grand Canyon poses no danger to the Colorado River water quality according to several studies. (See a report from the Arizona Geological Survey here.)

Grijalva’s “Santa Cruz Valley National Heritage Area Act” would establish a 3,325 acre National Heritage Area in Pima and Santa Cruz Counties which could have adverse affects on private property.

Arizona should boycott Grijalva at the next election.

Copyrighted by Jonathan DuHamel. Reprint is permitted provided that credit of authorship is provided and linked back to the source.