Mike Lee Questions Witnesses About Government Adding ‘Gross Royalty’ On Mining Companies

2 days ago

During a Senate Energy and Natural Resources Committee hearing prior to the congressional recess, Sen. Mike Lee (R-UT) questioned witnesses about the reality of royalties on mining companies.

Fuel your success with Forbes. Gain unlimited access to premium journalism, including breaking news, groundbreaking in-depth reported stories, daily digests and more. Plus, members get a front-row seat at members-only events with leading thinkers and doers, access to premium video that can help you get ahead, an ad-light experience, early access to select products including NFT drops and more:

https://account.forbes.com/membership/?utm_source=youtube&utm_medium=display&utm_campaign=growth_non-sub_paid_subscribe_ytdescript

Stay Connected
Forbes on Facebook: http://fb.com/forbes
Forbes Video on Twitter: http://www.twitter.com/forbes
Forbes Video on Instagram: http://instagram.com/forbes
More From Forbes: http://forbes.com

Transcript

00:00We'll now start the second round. Mr. Haddock, I'd like to start with you.

00:04A few minutes ago, you mentioned you'd be okay with a new net royalty.

00:10But that's not, of course, what's being proposed in S859.

00:15How do you think a gross royalty as proposed in S859 would affect the industry

00:24and would affect essential mining investment and development?

00:29Well, it would be devastating.

00:32The testimonies we submitted on the predecessor to this bill

00:36showed that that kind of royalty would take 67% of the value of the operation.

00:41It would take it up from about 30, where we spend a day for total government take,

00:46to two-thirds of the operation.

00:48And that just would make the United States impossible to do business in.

00:51So you add that on top of the other burdens, and it would make it an impossibility.

00:54Now, Mr. Summers, if there were a net royalty, there might be some businesses,

01:02some companies, I suspect, that could absorb that and deal with it.

01:05But what would that do to the state of competition in the industry,

01:09particularly as it relates to smaller companies, those that are less established?

01:15How would they fare in that environment when they had a net royalty

01:21added on top of the pre-existing burdens that we've been discussing today?

01:28I think it would be very damaging, and especially, again,

01:31when the resources obviously don't move, but the capital can move.

01:34And so companies are going to invest where they're going to get the best return.

01:38And I think especially in the mining industry,

01:40we rely very much on small exploration companies and on junior mining companies

01:44to develop many of these mineral deposits.

01:47And then, in many cases, they will be sold off to larger companies.

01:50I think that having anything that hampers investment,

01:53especially in those smaller companies in that front end of the mining,

01:57those front-end mining operations would be very damaging in the long term.

02:02So we have to look at this, I suppose, as one of many market signals.

02:07If we were to do that, like I say, even though some larger companies could absorb it,

02:14a lot of the newer exploration, or at least a significant amount of the new development,

02:20the new exploration is undertaken by startups, by smaller companies,

02:25who have to respond to all kinds of market signals,

02:27market signals that have to take into account whether there's federal land involved,

02:32whether to what extent there is federal permitting involved,

02:36whether to what extent there is a federal litigation risk associated with that permitting.

02:42You add more things on top of that, including a royalty, a new royalty,

02:50whether that's gross or even net,

02:54doesn't that in many circumstances chill investment in the United States

03:01and effectively drive it elsewhere?

03:04Absolutely, and I think it also goes in opposition to what many of the states are trying to do

03:08to bring investment to their states.

03:10So in Utah, for example, over the past few years we've passed two different tax credits

03:14that incentivize mineral exploration

03:16and also high-cost infrastructure associated with mining operations and other extractive operations.

03:21And so if you have the states moving in a direction

03:24where they're trying to incentivize production and exploration in order to attract that investment,

03:29but on the federal side you're moving in the other direction,

03:31then you're really canceling those efforts out.

03:33Right.

03:34Mr. Summers, how would you compare interacting with federal authorities

03:38on permitting and other matters to state regulators?

03:42For example, the Utah Division of Oil, Gas, and Mining, sometimes referred to as DOGM.

03:47What are those two experiences like?

03:50I think in many cases, as I mentioned in my testimony,

03:55it's very important that we protect primacy for states

03:58so that we can manage as many of these federal laws and regulations as possible.

04:03In general, I mean, the state agencies tend to be more responsive

04:06because, frankly, we can call their bosses.

04:09I mean, we can call the head of the Department of Natural Resources where DOGM is.

04:13We can call the governor, legislators, and get responses there,

04:16whereas trying to fix problems on a federal level becomes much more difficult.

04:21And not to say that we don't have opportunities to influence those agencies

04:26through working with our federal delegation and other things,

04:30but as a general principle, I think the government closest to the people functions the best,

04:35and we find that in regulatory agencies as well.

04:38Is there any kind of inferior environmental outcome

04:43or greater risk of environmental harm as a result of a decision

04:47where jurisdiction is vested in a state agency,

04:51for example, the Utah Division of Oil, Gas, and Mining, as compared to federal authorities?

04:56We've not witnessed that in Utah.

04:58The biggest significant difference, if I'm understanding you correctly,

05:01is the amount of time, the amount of delay, and the uncertainty.

05:04Shorter, greater certainty with the states without a diminished environmental outcome.

05:10Correct.

Mike Lee Questions Witnesses About Government Adding ‘Gross Royalty’ On Mining Companies

Category

Transcript

Recommended