The Hardrock Royalty

The problem

In 1872, Congress passed the General Mining Act to populate the West. It worked, and it was never repealed.

Under that statute, still in force, a person may locate a claim on most federal land, extract gold, silver, copper, lithium, uranium, or any other hardrock mineral, and pay the United States no royalty whatsoever on what comes out. The obligation is an annual maintenance fee of a couple of hundred dollars per claim. That is the whole of the public's compensation for the mineral itself.

Compare the treatment of everything else the public owns underground. Oil and gas produced from federal onshore leases pay a royalty that was set at 12.5 percent for a century and raised to 16.67 percent in 2022. Coal pays 12.5 percent on surface production and 8 percent underground. Offshore oil pays more.

Same landlord. Same land. One set of tenants pays rent, the other does not, and the line between them was drawn by the Forty-Second Congress.

There is a second half to this, and it is uglier than the first. Hardrock mining under the 1872 regime left behind an estimated half a million abandoned mines across the West, many of them draining acid and heavy metals into headwaters. Estimates of the federal cleanup liability run into the tens of billions of dollars. There is no dedicated fund for it, because there is no royalty to fund it with. Coal, by contrast, has paid a per-ton reclamation fee since 1977 and has cleaned up a great deal of ground with it.

So the public gives away the ore and keeps the hole.

This is the clearest, least ideological, most straightforwardly indefensible gap in the American public balance sheet. It has survived for a hundred and fifty years for one reason, which is that nobody outside a few Western delegations has ever paid attention to it.

The proposal

A royalty on hardrock minerals taken from federal land, at the rate already charged for coal. Half to reclamation, half to the American Permanent Fund.

How it would work

1. The rate. 8 percent of gross income from mining on new claims, matching the underground coal rate, with a lower 4 percent on claims already producing when the statute takes effect. The split rate is a deliberate concession to settled investment, not a matter of principle.

1. Gross, not net. Net-proceeds royalties invite the same deduction engineering that has hollowed out every mineral tax that has ever tried them. Gross royalties are crude and collectible. This catalog has taken the same position on compute in № 031 and for the same reason.

1. Half to the holes. Fifty percent of receipts to a dedicated hardrock reclamation fund, modeled on the coal Abandoned Mine Land program, plus Good Samaritan liability protection so that a third party who volunteers to clean up someone else's abandoned mine does not thereby inherit permanent Clean Water Act liability for it. That liability trap is currently the single largest obstacle to voluntary cleanup, and fixing it costs nothing.

1. Half to the Fund. The remainder to the American Permanent Fund as principal under the locks of № 023, joining spectrum (№ 015), data (№ 016), sovereign equity (№ 020), the grid (№ 024) and compute (№ 031).

1. End the giveaway of the land itself. Patenting, the provision that let claimants buy federal land outright for $2.50 to $5.00 an acre, has been suspended by appropriations rider every year since 1994. Repeal it permanently rather than renewing the suspension annually. A moratorium that must be re-enacted each year is not a policy, it is a habit.

1. Faster permitting in exchange. Paired with the shot clock in № 045. The industry's real complaint is timeline risk, not royalty rate, and the trade of a defined permitting schedule for a defined royalty is one both sides can price.

The numbers

Hardrock mineral production from federal land is not precisely known, which is itself a symptom: there is no royalty, so there is no reporting regime, so there is no number. The Government Accountability Office has said as much more than once.

Working from production estimates, the value of hardrock minerals extracted annually from federal land is plausibly $5 to $10 billion. At 8 percent, a mature royalty yields $400 to $800 million a year. Take the low end and phase it in: call it $300 million a year, half to reclamation.

$150 million a year to the Fund. At a 5 percent real return that compounds to roughly $2 billion of corpus in a decade, paying out about $100 million a year, permanently. Per citizen, that is about 30 cents.

Thirty cents. This is the smallest number this catalog has published and we are printing it in the same size type as the others.

Here is why it is in the 250 anyway. The reclamation half is doing real work immediately, on a $50 billion liability that currently has no funding source at all. The principle is the cleanest available: the public should be paid for the public's minerals, at the rate the public already charges for other minerals, and there is no argument against it that survives being said out loud. And the base is about to grow, because the lithium, copper and rare earth demand of the machine economy runs directly through Western federal land. Establishing the royalty before that boom is worth vastly more than establishing it after, and after is when it becomes impossible.

Nobody has ever successfully attached a public claim to an industry once that industry was rich. We said that in № 031 about compute. It is even truer about a statute that has already survived a hundred and fifty years of exactly this argument.

The honest objections

"You are raising the cost of domestic critical minerals at the precise moment the country is trying to onshore them." The strongest objection, and it is timely rather than theoretical: lithium, cobalt, copper and rare earths are national security inputs, and № 030 argues for supply chains that do not snap. Three answers. An 8 percent gross royalty is small against the cost differentials that actually drive mine siting, which are ore grade, permitting time, and capital cost. Item 6 trades a defined permitting schedule for the royalty, and every operator we are aware of would take that trade. And if the concern is genuinely about specific critical minerals rather than about gold, the statute can carry a reduced rate for a designated critical minerals list, which is a narrow and defensible carve-out rather than a blanket exemption for everything including precious metals.

"Existing claims are property. This is a taking." This is why item 1 splits the rate and why existing producers pay half. The legal position is that an unpatented mining claim is a possessory interest subject to congressional regulation, and Congress has changed the terms of federal mineral tenure before. That said, a claimant who invested under one regime and is taxed under another has a real grievance even where the courts do not recognise a compensable one, and the reduced rate is the price of moving without a decade of litigation.

"Mining already pays federal and state taxes. This is a second bite." It pays income tax, as every business does, and severance tax in several states. Neither is a royalty. A royalty is not a tax, it is the price of the asset, paid to the owner. Chevron pays corporate income tax and pays the government for the oil. The whole question is whether the United States is the owner of the copper in its ground, and if it is not, it is unclear what "federal land" means.

"Nevada and Alaska will never allow it." Probably correct in the near term, and this proposal has failed in Congress repeatedly for exactly that reason. Which is why the reclamation half matters politically as well as substantively: the abandoned mines are in those same states, poisoning those same watersheds, and a bill that arrives with cleanup money attached is a different bill from one that arrives as a pure extraction. The Western delegations are not wrong that their states carry the costs of federal land ownership. They are wrong that the answer is free ore.

"Thirty cents a year is not worth the fight." As dividend arithmetic, no. As the correction of a hundred-and-fifty-year-old error, on a base about to be multiplied by the energy transition, with $50 billion of unfunded cleanup attached, yes. We would publish this one at three cents.

Sources

• General Mining Act of 1872, 30 U.S.C. § 22 et seq.; annual claim maintenance fees; patenting moratorium sustained by appropriations rider since 1994
• Federal onshore oil and gas royalty raised from 12.5% to 16.67% by the Inflation Reduction Act (2022); federal coal royalty rates of 12.5% surface and 8% underground
• Government Accountability Office reports on hardrock mining on federal land and the absence of federal production reporting (gao.gov)
• Abandoned hardrock mine inventory and estimated federal reclamation liability; EPA and BLM abandoned mine land programs (epa.gov)
• Surface Mining Control and Reclamation Act of 1977, establishing the coal Abandoned Mine Land fee as the funding precedent
• Proposals № 015, № 016, № 020, № 024, № 031 (contributing streams); № 023 (The Debt Covenant); № 030 (The Compute Reserve); № 045 (The Permitting Clock)