By Avery Palmer, CQ Staff

Big companies seldom endorse new laws that all but guarantee they will pay more for their raw materials. But that’s precisely what Tiffany & Co. chairman and chief executive officer Michael J. Kowalski did this year when he called for overhauling the 135-year-old law that governs mining on federal land, making changes that would impose new environmental controls and require mine owners to pay the government royalties for the first time.

Tiffany’s counterintuitive approach to extracting gold and other “hard rock” minerals reflects what Kowalski considers enlightened self-interest. As the public becomes more conscious of environmental issues, and corporations scramble to display their green credentials, executives are discovering that it behooves them to police their own factories and supply chains.

Industries that extract resources from the ground have undergone particular scrutiny in Congress over the past year. Democrats have tried to roll back tax breaks that benefit oil companies and force them to pay more royalties for their offshore drilling. Companies that mine coal, which is not subject to the 1872 law, worry that they could be next if Congress decides to impose new pollution controls on coal-fired power plants to reduce greenhouse gas emissions.

EARTH MOVERS: Today’s gold mines are big operations, like this Newmont Mining Corp. quarry in Nevada. (BLOOMBERG NEWS / STEPHEN HILGER)

And the hard-rock mining industry, which has pretty much had its way since the General Mining Law of 1872 was enacted during the administration of Ulysses S. Grant, stands to lose at least some of the government’s largesse. Some of this stems from the industry’s recent economic success — the high price of gold, copper and other metals has led to a sharp increase in the number of mining claims, some of them near national parks. What is more, those who stand to benefit most from the increased activity include Canadian and Australian conglomerates that are among the industry’s biggest players.

Tiffany is part of an unlikely assembly of interests, including environmentalists, sportsmen’s groups and even mining companies, who agree that the law should be changed — and during this Congress. The question is how much.

“In the last six months, it’s kind of an odd confluence of forces that’s really brought it to the stage where it’s a realistic possibility,” said John Leshy, a professor of property law at the University of California-Hastings and a former solicitor general at the Interior Department under the Clinton administration.

The 1872 mining law not only encourages companies to prospect and dig for minerals; critics say it subsidizes their operations.

Prospectors can claim mineral rights to 20-acre tracts of federal land for a $170 down payment and then $125 a year, without being subject to limits on the number of claims or royalty payments on the profits. The law also allows miners to “patent,” or buy the property outright once they’ve claimed it, for between $2.50 and $5 an acre. The price is so low that Congress has blocked sales annually in its appropriations bills since 1995.

Environmentalists and other critics have been trying for years to persuade Congress to impose stronger requirements for the cleanup of mines and new safeguards to prevent the contamination of groundwater. Most modern mines are vast, open pits, where cyanide is used to extract minerals from the ore.

But senators from Western states, where virtually all the mining on public lands takes place, have fended off significant changes for decades, arguing that the activity is vital to their region’s economy. Similar arguments have been made to protect grazing rights on federal land and logging in federal forests.

Democrat Nick J. Rahall II of West A-Virginia, who chairs the House Natural Resources Committee, has been trying to overhaul the mining law for more than 20 years, driven mainly by his belief that companies should pay for the privilege of extracting resources from public land. Rahall’s state is dominated by the coal industry, which is required to pay royalties. In 1989, the Government Accountability Office issued a blistering report on hard-rock mining regulation that found “some patent holders reaping huge profits at the government’s expense.”

A bill Rahall introduced in 1993 passed the House by more than 300 votes but failed to gain traction in the Senate. The big difference now is the involvement of jewelry companies like Tiffany and the willingness of the mining industry, and its allies in Congress, to deal. Companies reason that if Democrats win the White House and a larger majority in Congress in 2008, they will impose tougher restrictions on mining than the companies might be able to negotiate now.

During his term, President Bill Clinton approved a regulation giving the Bureau of Land Management discretion to deny mining permits it thought could harm the environment. The rule, finalized just before Clinton left office, was later scaled back by the Bush administration. Clinton’s proposal to charge royalties on minerals mined on public lands died in the Republican-controlled Congress.

Laura Skaer, executive director of the Northwest Mining Association, one of the main industry groups in the debate over the mining law, said one goal for the industry is to pass legislation “in a way that the next presidential administration can’t change the rules.”

Image Worries

For jewelry companies, which use about 80 percent of the gold produced worldwide, the environmental record of the mining industry is an international concern.

Claims Follow Gold Price: Click here to view the chart

Part of the jewelry industry’s motive in backing an overhaul of the mining law can be traced to the public outcry over “conflict” diamonds in Africa, said Lauren Pagel, policy director at the environmental group Earthworks. “Jewelry retailers have signaled to the mining industry that they don’t want metal mining to be the next Blood Diamond,” Pagel said, referring to the recent movie about worker exploitation in diamond mines in Sierra Leone.

Working with environmental and human rights activists, 26 jewelers have signed on to so-called golden rules to promote a sustainable gold mining industry worldwide A-— sustainable in that companies would protect the environment and seek to conserve energy. Companies involved include Wal-Mart, the country’s No. 1 jewelry retailer; as well as Tiffany, Zale Corp., Helzberg Diamonds and others. Those companies are helping develop an international certification system to ensure that their gold comes from sustainable mines and are conducting supply-chain audits to track the sources of their gold.

In May, Kowalski at Tiffany wrote an op-ed article for the Las Vegas Sun, in the heart of mining country, to explain why he advocated changes in the 1872 law. Among his reasons: “As a taxpayer, I believe that those who benefit from the extraction of mineral resources from public lands should pay fairly for that use. Ultimately, this cost will make it more expensive to produce jewelry, but it is the right thing to do.”

Ready to Talk

A pivotal figure in the mining debate is Senate Majority Leader Harry Reid , D-Nev., a son of a miner and a longtime ally of the industry. Reid’s willingness to negotiate a mining bill is considered the best indication that the industry is ready to make a deal.

When Rahall held a field hearing in a mining area of northern Nevada during the August recess, Reid made introductory remarks. “It is my genuine hope,” he told the crowd, “that at the end of this Congress that we can both be proud to have delivered real and reasonable reform for one of our nation’s vital industries.”

Reid added that finding a compromise was better than “crossing our fingers every four years and hoping that the newly elected president understands the West and understands the importance of mining.”

Such hopes for a negotiated bill have been expressed before, only to vanish in bickering over the level of royalties and fees and whether mining land should be purchased or leased. But with so many players on board, there is unaccustomed optimism that Congress will act soon.

Rahall’s bill would impose royalty payments on the industry, end the “patent” system of purchasing land and establish new environmental requirements. The bill is expected to pass the House with little difficulty thanks to the support of Eastern lawmakers with little connection to the industry. But it faces longer odds in the Senate, where mining companies are likely to push Reid to negotiate for lower royalty payments and less-restrictive environmental rules. At the same time, the industry’s position could be weakened if another longtime ally, Republican Sen. Larry E. Craig of Idaho, leaves the Senate at the end of this month.

Lucrative Business

The new campaign to change the mining law comes in a boom time for the mining industry. Economic growth in China and India has led to dramatic increases in the price of gold, silver, copper and other metals. The price of uranium, which is also covered under the 1872 law, has increased in the wake of reinvigorated interest in nuclear energy. Those higher prices have prompted mining companies to step up exploration in the United States after years of waning interest.

The industry, meanwhile, has consolidated to the point where it is dominated by a few large companies. Many of them have indicated that they support a mining reform bill in some form, though details are scarce. For instance, Barrick Gold Corp. of Canada, one of the world’s largest gold mining companies, supports what a spokesman called “reasonable reform” of the 1872 law.

One source of friction in any talks is likely to be the design of new royalty payments. The bill that Rahall introduced would set an 8 percent royalty based on gross proceeds. However, the industry wants assessments to exclude the costs of processing the minerals.

Rahall’s bill also would permanently eliminate the patent system, but the industry wants to ensure that if companies can’t buy land outright, they would retain access to the minerals as long as they complied with environmental rules. The National Mining Association said the bill should “provide the certainty needed for private investment in mining activities on public lands by ensuring security of title and tenure from the time of location through mine reclamation and closure.”

On the other hand, the industry agrees with environmental groups that any royalty revenue should be used to clean abandoned or unused mines. Federal agencies estimate that there are at least 100,000 such sites in the West and that a significant number pose long-term environmental hazards.

But environmental standards are sure to factor prominently into any negotiations. The industry contends that it is adequately covered by existing environmental laws and regulations, while environmental groups say there are gaps in the coverage, and they want Congress to write comprehensive air and water pollution standards.

The Bush administration has sided with the industry. Henri Bisson, the deputy director of the Bureau of Land Management, testified in July before a House subcommittee that additional environmental standards “are both unnecessary and redundant.”

Environmental groups are allied with a number of sportsmen’s groups, including the Theodore Roosevelt Conservation Partnership and the Foundation for North American Wild Sheep. The support of such groups is an indication that the politics of Western land use are changing.

“Historically, mining played an important role in the social and economic well-being of many communities, and it was vital in the development and settlement of the Western United States,” conservation groups said in a letter to Congress in July. “Hunting and fishing, on the other hand, generated more than $63 billion in revenues to local economies in 2006.”

FOR FURTHER READING:

The Rahall bill is HR 2262; taxes on oil and gas companies, CQ Weekly, p. 2466; coal mining, p. 795; past mining debates in Congress, 1999 Almanac, p. 2-82; 1995 Almanac, p. 11-48; 1994 Almanac, p. 513.