Will the Administration's Dirt Tax Bury New Rare Earth Mining Efforts?

One of the greatest ironies of the current administration involves the disparity between public endorsement of green technologies and the green economy and the actual public policies introduced that will make it that much more difficult to develop said green technologies and the green economy.

Take, for example, the ËœDirt Tax’ as described by the NMA (National Mining Association), which may be under consideration to be included as part of the Deficit Reduction Commission’s plan, although originated by President Obama as part of the 2012 budget plan. The tax would apply to any hard-rock mining “operations on private and public lands, according to the NMA.

In other words, any US mining concern involved in “locatable (think minerals that one needs to actually find) vs. those minerals that fall under the Mineral Leasing Act (e.g. potash, coal, and phosphates) will become subject to the tax. Furthermore, the tax covers more than just the minerals removed from the ground, but also the dirt, rock and any other materials removed. According to the proposal, the $.078/ton tax would go into effect in 2012 through 2015, at which point the Secretary of the Interior could change the taxable rate. The tax burden on the mining industry could reach $1.8 billion based on calculations made by the administration using 2008 US Geological Survey data.

In an interview with MetalMiner, Katie Sweeney, General Counsel of the NMA, discussed several reasons why the mining industry opposes the current proposal: “¦it would apply to existing mines¦they would never have contemplated this. She went on to point out that an existing marginal mine could become uneconomically sound based on this additional tax. In addition, foreign direct investment (another area heavily supported by the Obama Administration) would see further declines. According to Sweeney, the Dirt Tax would “detract from foreign investment¦today, FDI represents 7-8 percent in the mining industry, down from over 20 percent in 1993. We believe FDI in this industry would decline even further if this should pass.

Sweeney makes compelling arguments, but we’d suggest that the Obama Administration (and the Super Committee reviewing this proposal) also consider the potential [negative] impact of such a tax on the junior miners who seek to develop economically viable mining operations. Of course, many other junior mining firms with other minerals and metals would also fall under the scope of any proposed legislation.

Why US Mining Has Become Uneconomic

We have heard other rare earth pundits discuss the reasons why the United States has stopped (though has just now restarted) mining rare earth metals. That argument places much of the blame on buying organizations that sought (and continue to seek) low prices. Subsequently, the argument goes, the buying organization drove production offshore (e.g. to China).

We’d argue that only partially addresses the argument. Onerous US environmental laws, government regulations and taxes have made many US mining operations uneconomic. The Dirt Tax represents yet another example of how policy impacts where companies go to source materials.

The proposal may move to the Super Committee of twelve by Nov. 23, Sweeney said.

If the Obama Administration really wants a green economy, it ought to consider burying the Dirt Tax.

–Lisa Reisman

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  • – “The tax burden on the mining industry could reach $1.8 billion based on calculations made by the administration using 2008 US Geological Survey data.”
    – Not exactly a jaw dropping revenue windfall for the U.S. treasury
    @ 1.8 billion ! Most importantly though, it sends exactly the wrong message at exactly the wrong time, to the investment and mining industries; at a time when the U.S. should be wholely focussed on re-establishing itself as a world wide innovator/creator of fully integrated supply chains (from mining to manufacturing) , in industries that will most certainly represent the future; that being hi-tech and green renewables.



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