Billions at Stake in Debate on a Gold Rush

By TIMOTHY EGAN,
Published: August 14, 1994

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In 1872, the Sioux Indians still roamed free over part of the northern Plains, Wyatt Earp had yet to draw a bead on the Clanton gang and President Ulysses S. Grant signed two laws that would shape the American West.

One created the world's first national park, at Yellowstone, a place whose theatrical geysers and waterfalls were still thought to be a fiction from Thomas Moran's paintbrush.

The other virtually opened the entire West to hard-rock mining, stipulating that the search for gold, silver and copper would take precedence over anything else on Federal land. Anyone inclined to get friendly with a mule and a pick could go clawing at a piece of earth on the public domain and, if minerals were found, buy that claim for no more than $5 an acre.

Most of the boom towns spawned by the mining law are empty now, lost to the elements. But the law is still on the books, and it has helped to start a new gold boom, the biggest in American history.

This time around, Federal records show, the prime beneficiaries are foreign-based corporations, not small prospectors. And the big companies are mining gold at a record rate from public land without paying a dime in royalties.

They are also rushing to convert the most valuable mines on Federal land to private holdings, paying the same rate as the "sourdoughs," the first crop of miners, did in 1872: $2.50 to $5 an acre. This year, private companies are trying to take title to taxpayer-owned land holding minerals worth more than $34 billion, according to estimates by the Mineral Policy Center, a private research group that tracks mining.

Critics lash out at the 1872 law as the last and greatest of the Old West giveaways, exploited well beyond its intent.

But its defenders, led by Western senators, say that even if the prospectors of 1994 are based in London, Brussels and Toronto, they provide high-paying jobs in small communities and keep alive a venerable industry. For many of these Westerners, the effort to change the mining law represents more than an economic threat; they see it as an attack on tradition and a way of life.

A showdown seems likely in Congress, where a bill to overhaul the law is threatened with a filibuster by Western senators.

All the arguments in the debate can be found here in Cooke City. Like two rivers born from the same source and then coming back to face each other after a meander through time and terrain, the 1872 mining law and the first national park are in direct conflict here. The Debate Fight for Control Of Vast Lands

Three miles from Yellowstone National Park, Noranda Inc., a Canadian conglomerate, plans to hollow out a mountain that is said to contain more than $500 million in gold, silver and copper. For the Federal land, they will pay $225. While Yellowstone officials say the mine poses a half-dozen threats to water, wildlife and the general sanctity of the 2.2-million-acre preserve, Noranda, which is based in Toronto, says it can all but guarantee that a lake full of mine waste will not seep into the park.

The flash point at Yellowstone is part of a struggle that will set the tone for control of public lands well into the next century. Gold, which drew hordes of people to West, is now the source of one of the biggest fights over power in the 11 Western states, where half the land is in the Federal domain.

All Westerners live within an hour or so of some public land. But who controls that land -- be it mining companies, irrigators, cattlemen, wildlife advocates or Washington bureaucrats, all whom have been mixing it up in recent fights over mining, grazing, timber and water rights -- is at the heart of this latest battle for the West.

On one side are Interior Secretary Bruce Babbitt and two-thirds of the House of Representatives. Last year, the House passed a bill that would impose an 8 percent royalty on the values of minerals taken, eliminate the sale of land that now goes for the price of a large ballpark hot dog and set environmental standards for cleanups.

On the other side is a core group of Western senators and governors, who agree that the 1872 law needs changing but say the House bill would hurt mining companies, discourage exploration and put a clamp on a boom that has made the United States the second-leading gold-producing nation, behind South Africa.

"This would be the death knell of American mining," said Senator Malcolm Wallop, Republican of Wyoming.

Somewhat lost in the debate, supporters of the bill say, is the original intent of the law, which was to spur the economy and help the small prospector. While mining once drove the West's economy, it is now at the lowest level ever as a percentage of the overall jobs picture.

A total of 40,000 people -- fewer than 1 Westerner in 1,000 -- work in hard-rock mining, according to the Bureau of Mines. There are more people -- about 60,000 employees -- working for the ski industry in one state, Colorado, than there are hard-rock mine employees in the entire United States.

But the mining industry and some Western politicians say that the relatively high-paying jobs are the backbone of areas like Elko, Nev., and that the money has kept alive some dying towns.

The industry, which has a skillful lobby, longstanding support from crucial Western senators and a historic link to early white settlement, has been able to maintain power even as its economic importance has faded. The companies have succeeded in fighting back more than a decade of Congressional efforts to charge a royalty, and they expect to prevail this year, too.

Even if they are troubled by foreign dominance of mines, many Western politicians are willing to put aside their quibbles to fight the larger battle over control.

"They are trying to stick it to us, in every little way they can," said Senator Wallop of Mr. Babbitt's plans to charge mining royalties and higher grazing fees.

Senator Alan K. Simpson, Republican of Wyoming, said: "This is not about money. We are defending our Western heritage."

The real agenda behind the modern push to change how the land is used and what to charge for it, Senator Simpson says, is to drive out miners and cattle. "These people should have the guts to come out and say what they're really after," he said, referring to many of the new Western environmental groups. "They don't like cows because they poop too much. And they don't like mines because they mar the scenery. They would like to to get rid of them all."

As things now stand, mining is clearly the leading power over public lands, with more than 400 million acres at the industry's disposal. Though logging and livestock grazing is permitted in large parts of the open West, users pay regulated fees and are restricted by a host of environmental regulations.

"Tradition dies hard," Mr. Babbitt said. "The mining companies are saying: 'We've held our ground for 122 years. We're not going to give up now.' " The Danger Yellowstone Fear About Mine Waste

Here in Cooke City, an eagle's flap of the wings from Yellowstone, Noranda has been trying to get title to 45 acres of national forest land to complete its holding in the New World Mine, in a high, forested valley above the park.

Under the law, if minerals are found, and a mine operator can prove he can take them out, the Government must sell the land at the 1872 price. In 122 years, more than 3.2 million acres have been sold, or patented, as the process is called.

Park rangers at Yellowstone say their worst nightmare is just a few hundred miles to the south, high in the San Juan range of the Rocky Mountains, where another Canadian company has left the Government with a $100 million cleanup job. After extracting 280,000 ounces of gold from the Summitville mine, Galactic Resources of Vancouver, British Columbia, declared bankruptcy in 1992 and left Colorado.

It left behind a leaking, toxic soup of cyanide and heavy metals; the waste has killed 17 miles of streams and polluted water supplies in lower valleys, infuriating farmers and fishermen. The Environmental Protection Agency is spending more than $40,000 a day to contain the disaster.

The West is full of dead rivers, rust colored from mine waste, a legacy of the fact that the 1872 mining law has no cleanup or reclamation requirements. There are more than 10,000 miles of dead streams, by one Federal estimate.

In Montana, the operators of the Noranda mine say they can pull eight million tons of ore out of a mountain that shadows Yellowstone, fill a 77-acre lake 10 stories deep with mine waste and then seal it for eternity, without threatening the park.

It will be a showcase mine, says Allan Kirk, chief geologist for the project.

Summitville, Mr. Kirk said, "was an embarrassment," and should not be held up as an example of what can happen here. He says the mine waste will be cradled in a high valley and cannot leak into the park.

But Stuart Coleman, the natural resource director of Yellowstone National Park, says there is no worse place to put a mine than here, nearly 10,000 feet above sea level, in one of the most seismically active areas of the continent, a home for grizzly bears and moose. The Companies Western Politics, Big Investments

The last Western revolt against Washington, the Sagebrush Rebellion of the late 1970's, was a political movement focused on local control, keeping Federal bureaucrats at bay and opening more Federal land for mining, grazing and logging. The states felt that the Federal grip was so restrictive on so much land that it was stifling economic opportunity.

The 1990's fight, critics of the 1872 law say, appears to be more about holding on to century-old subsidies that have proved to be a bonanza to some companies. Nowhere is this more evident than in mining.

Trying to determine who controls mining, the General Accounting Office, the investigative arm of Congress, reported in 1992 that 283 mining operators accounted for 92 percent of production.

Of the top 40 companies taking minerals from public land, 23 are subsidiaries of foreign corporations or are largely controlled by foreign companies, according to the Interior Department.

While these companies pay nothing for minerals, oil and coal companies have long paid billions for their right to take public resources, as the law requires. In the last 25 years, the American oil industry has paid nearly $100 billion in lease fees and royalties to the Government -- or 12.5 percent of sales.

The hard-rock mine owners argue that their ventures are highly speculative, with no guarantee of a profit, and that it is much easier to calculate risk and cost with oil, gas and coal.

Still, critics wonder how the big gold mining companies have been able to hold on to a privilege that the big oil companies lost more than 70 years ago. The reason, says Charles Wilkinson, professor of law at the University of Colorado, is because mining is the oldest and strongest of the "lords of yesterday" that have long held power in the West.

"The Western economy has settled into the comfort of a unique kind of welfare system," Mr. Wilkinson wrote in his book, "Crossing the Next Meridian" (Island Press, 1992).

But one person's welfare system is another's livelihood.

"There needs to be an incentive" to make the huge investment mining requires, said Terry Fiske, a vice president with Echo Bay Mines, a large operator based in Edmonton, Alberta.

The 1872 mining law was intended as a logical extension of the Homestead Act, in line with Jeffersonian thought about the small farmer, merchant or prospector.

The Congressional Record from 1872 shows clearly that the law was intended as a temporary measure to help the average American "build their little homes, improve the land, raise his peach trees and potatoes and conduct his mining and farming operations at the same time," as one Congressman put it.

In the first few years of the law, boom towns rose out of every other gully. Cooke City at one time had nearly 5,000 people (its current population is 100), as people panned for gold in streams and dug into mountainsides.

But once the surface gold was gone, prospectors became laborers. Picks and shovels were replaced by mountain-boring drills and train tracks deep into the earth. The mining towns that developed -- Butte, Mont.; Kellogg, Idaho; Park City, Utah, and Aspen, Colo. -- became hotbeds of unionism, not independent sourdoughs.

By 1940, three corporations -- Kennecott, Phelps Dodge and Anaconda -- controlled 80 percent of the West's copper output.

As markets for gold, silver and copper went flat, Western mines closed, leaving behind more than 500,000 abandoned sites and 50 billion tons of waste.

In the early 1980's, a new technology -- a process in which cyanide is used to leach out particles of gold invisible to the naked eye -- helped to spur a rush back to the old mines. The new mines required millions of dollars and were highly automated. So, even though the United States increased its gold output 10-fold in 12 years, the hard-rock mining industry shed nearly half its workers.

Modern techniques make it nearly impossible for a small operator to make any money, mining experts say. The most productive gold mines in Nevada use $6 million mechanical shovels and $1 million trucks. The tires alone, 12 feet in diameter, cost $20,000 apiece.

Mr. Kirk, the Noranda geologist, showed off a piece of ore with a swirled streak of gold embedded in the side. It is a core sample from deep inside Henderson Mountain, the peak above Yellowstone. But most gold yet to be mined will not be this visible. He said the company would have to mine nearly four tons of rock to get a single ounce of gold.

Asked if the 1872 law was ever meant to be used by companies the size of Noranda, Mr. Kirk shook his head.

"The 1872 law has served its purpose," he said. "It needs reform." But he said the House bill, with its 8 percent royalty, would discourage many smaller companies from looking for gold.

Last year, 10.6 million ounces of gold was mined in the United States -- three times as much as was taken in 1853, the peak of the California gold rush. About 43 percent of that gold was taken from public lands. When mine operators lease land from private owners, they often pay far higher royalties.

Mine owners have filed patent requests on 612 claims covering 240,000 acres, a threefold increase over the pace of decade ago.

In May, in what Mr. Babbitt called "a historic giveaway," the Interior Department gave a Canadian mining company title to one of the richest veins of gold in the United States. The agreement, ordered by a Federal judge, allowed the American Barrick Resources Corporation to obtain title to public land containing gold valued at $8 billion to $10 billion in Nevada. For the 1,800 acres in the claim, the company paid the Treasury $9,000.

The Canadian owners of the Nevada mine note that they have spent millions of dollars developing the ground and have played by all the rules. They say they provide a stable base of employment in a state dominated by gambling. In places like Elko, the streets are not exactly paved with gold from American Barrick's venture nearby, but the huge mine has brought a measure of visible prosperity.

Mining wages, on average, are far higher than in most blue-collar jobs in the West, though they last only until the gold is played out, or about 10 years for most newer mines operating now.

When asked why the United States has become the land of opportunity for foreign-based companies, the mine operators cite several reasons -- good roads, stable government, accessible ports, supportive politicians and the fact that the gold, copper, platinum and silver on public lands are free. Some Canadian provinces, by comparison, charge their own companies a royalty of up to 12 percent on the minerals they remove from the ground.

Although there are many American companies now riding the new gold boom, the foreign companies still dominate because they have been at it longer, building on new techniques developed when many American mines were dormant, experts say. Also, there are tax advantages for keeping the corporate base in another country while operating in the United States.

For the most part, they strictly follow the law, officials say. "They are ripping off the American people fair and square," Mr. Babbitt said.

A question remains about whether any small-time prospectors are still benefiting from the law that was set up to help them.

Senator Wallop said a significant change "would really hurt the small prospector, and believe me, there are a lot of them out there."

But a search for sourdoughs turns up a lot of abandoned mines and lonely hillsides. Here in Montana, the vast Gallatin National Forest near Yellowstone has more than 3,000 mining claims filed on it. But with those claims, there is only one active mine, said Sherm Sollid, chief geologist for the forest. That mine is run by a subsidiary of a Canadian-controlled company, TVX Gold Inc.

David Amsk, who works as a real estate agent and railroad employee in Livingston, Mont., owns several claims on 120 acres.

"I guess you'd have to call it a hobby," Mr. Amsk said. "There's no way I could be in a position to mine. That would cost millions."

But he made some money by leasing the land to a foreign-owned company.