Legislature(2003 - 2004)
02/04/2004 01:42 PM House RES
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HB 344-MINING FEES, RENTALS, & ROYALTIES CO-CHAIR DAHLSTROM announced that the first order of business would be HOUSE BILL NO. 344, "An Act relating to annual rental fees for mining claims, and providing for reduced royalties during the first three years of production." Number 0139 JIM POUND, Staff to Representative Hugh Fate, presented HB 344 on behalf of Representative Fate, sponsor. Mr. Pound characterized HB 344 as a bill the would allow Alaska to continue in [resource development]. In the past, he said Alaska [had many] small precious metal mines operated by actual owners with one or two employees. He explained that those mines brought income to themselves, individual people, and the state. Mr. Pound said many of those hardworking miners have been forgotten over the years, with [the state] paying more attention to oil and gas [development]. Today, the small mine is all but gone from Alaska because [the state] has not given those miners the incentives to go back into the field to work, he said. MR. POUND said HB 344 is designed to start that process again. The incentives include a reduction in the rental fees and claims for the first five years, and the miner will also get a credit on his or her royalties for the first three years. He said the small miner is what made Alaska what it is today. Furthermore, it is a small business that buys locally and is an industry that can prosper statewide. He urged support for HB 344. Mr. Pound noted that the sponsor had some amendments he would like to offer. Number 0421 REPRESENTATIVE HEINZE asked if all claims are of equal size and cost. Number 0450 STAN FOO, Mining Section Manager, Division of Mining, Land and Water, Department of Natural Resources (DNR), testified. He said one of DNR's concerns is that there is currently no distinction in state law between placer mining claims and hard rock mining claims, although it is a distinction in federal law. Mr. Foo said that is an issue that would have to be addressed. REPRESENTATIVE HEINZE mentioned Donlin Creek. She asked for clarification on [various sizes of operations]. MR. FOO, in response, said Donlin Creek is on private grounds controlled by the Calista Corporation and the Kuskokwim Corporation. He said it seems like the bill is distinguishing between the small placer operator and the hard rock operator, which is a distinction that isn't available under state law. However, federal law does differentiate between placer mines and hard rock mines. With regard to size of operations, he said there is an obvious difference between Fort Knox and a small placer operator in the size of the property and production and the possible royalties that might be generated. Number 0626 REPRESENTATIVE STEPOVICH asked if the bill reflects that. MR. FOO, in response, said the bill seemed to distinguish between placer operations and hard rock operations. Number 0735 REPRESENTATIVE KERTTULA said she has some major concerns, one if which is that it looks like the sponsor wants to make the differentiation between placer and hard rock claims, which the state doesn't make. She said she is not sure that the language is really clear [in distinguishing] between small and large mines, which she thought was the intent. Representative Kerttula indicated she would like Mr. Foo's help to be absolutely certain of that. She asked Mr. Foo how this plan is going to interact with exploration incentive credits currently in place. MR. FOO said this bill would provide additional tax or royalty reductions. He said currently, most of the large hard rock operators do qualify for the $20 million in royalty reductions and exploration credit. There is also a break given for the first three years of operation. This would be in addition to that, he said. REPRESENTATIVE KERTTULA asked Mr. Pound if the real intent is to "touch" the placer mines. MR. POUND, in response, said correct. He said he had some "clean up" language. Number 0893 REPRESENTATIVE GATTO pointed out that the fiscal note had a page and a half of notes at the bottom. He turned attention to page 2 of the fiscal note, which read in part: Therefore, it would not be possible to apply the provisions of this bill exactly as they are written. This fiscal note assumes that this technical issue is resolved .... REPRESENTATIVE GATTO said apparently [the technical issue] is not [resolved]. Suggesting that the fiscal note is confusing, he said the question cannot be addressed because the differences between [placer mining and hard rock mining] are not resolved yet. He remarked, "They are lumped together and yet we're taking them apart in the bill, but they haven't been taken apart yet." Number 0973 MR. POUND, in response, said those are technical issues that he'd just found out about. He said he had some conceptual language that he thought would resolve the issue. REPRESENTATIVE GATTO asked how much money the operator would save because of this bill. MR. POUND, in response, said a lot of it has to do with the viability of the mine, especially with the royalties aspect. He said if a mine operator has a relatively viable mine that starts producing and the operator can save on royalties within the first five years, it will return the cost of getting that mine into operation. Mr. Pound remarked, "A small mine is probably a D6 or 8." He said in a placer mining operation, the other equipment that is involved is a fairly large investment. Number 1082 REPRESENTATIVE STEPOVICH turned attention to page 3, lines 10- 13, which read: (B) a credit equal to the total amount of net losses during the first three years of production; this credit may be applied to the production royalty owed in the first three years during which production yields a net income. REPRESENTATIVE STEPOVICH asked if he understands this language to mean that if the losses outweigh royalties, then it would be possible to receive a credit. Number 1143 MR. POUND responded that is correct. REPRESENTATIVE STEPOVICH asked if the state will be giving back money to companies in which [the losses far outweigh the royalties]. MR. POUND responded that he does not foresee a situation where the state will be giving back money. REPRESENTATIVE STEPOVICH asked for clarification on how the credit works. MR. POUND replied DNR may be able to explain [how the credit works] better than he can. He said as he understands it, the mine operators are allowed to take net losses and apply it as part of their credit against royalties [owed to the state]. If the mine is viable and profitable in three years, then the mine operator would get an additional royalty credit. REPRESENTATIVE STEPOVICH turned attention to page 3, line 11, he asked if the word "may" leaves [the interpretation of this bill] open. MR. POUND responded that this language would leave it wide open for the miner. He said with this wording, the miner may or may not choose to apply the credit this way, as opposed to using the word "shall". He added that the miner could have another way to write off the losses. Number 1269 REPRESENTATIVE GUTTENBERG asked if anyone has done an economic model to [examine] the viability of this plan. MR. POUND replied that he is not aware of any. REPRESENTATIVE GUTTENBERG asked Mr. Foo if this bill actually separates the placer [miners] from hard rock [miners]. Number 1300 MR. FOO replied that he believes it would be necessary to distinguish between the placer and hard rock mines to enact this legislation. REPRESENTATIVE GUTTENBERG asked Mr. Foo if this bill clearly and definitively makes a distinction between the two [types of mining]. REPRESENTATIVE GUTTENBERG, in response to Mr. Foo's comments, said the bill says the distinction must be made, but does not actually make that distinction. It leaves DNR to make that decision, he commented. Number 1368 REPRESENTATIVE GATTO said it appears a placer miner could save $20 for a placer mine and a hard rock miner could save $50 for a hard rock mine. According to the fiscal note this savings would cost the state $15,000. He said he is concerned that this bill would cost $15,000 to give out $20 or $50 credits. Representative Gatto questioned that a miner would be concerned about $20, and he said he does not believe that this is something that should be offered. He asked Mr. Pound to provide a justification for spending $15,000. MR. POUND advised the committee that he was told this morning that the cost of "MTRSC" has gone up. He added that he only received the fiscal note today and has not had the opportunity to look at it to determine if the figures are completely valid. REPRESENTATIVE STEPOVICH asked what the maximum savings would be for the miner under subsections (f) and (g). MR. POUND responded that it would depend on the viability of the mine. He explained that there would not be any kind of major savings for the rent, but there could be a savings on the royalties if it is a viable mine. Number 1506 CO-CHAIR MASEK asked for clarification on what happens to the sites mentioned in the sponsor statement and if big corporations are letting these sites go [back to the state to be leased]. MR. FOO asked for clarification of Co-Chair Masek's question. Number 1554 CO-CHAIR MASEK said the intent of this legislation is to encourage more mining. She asked if there are there a lot of big corporations that are holding onto leased mining sites which are not being mined. MR. POUND responded that the statement was inserted into the sponsor statement based on information provided by [Fairbanks Gold Mining, Inc.] that in the Fairbanks area there are a considerable number of mining claims that from a corporate perspective, they do not consider viable for them to mine. He said their process is to just hold on to the properties and pay the rent; therefore, no royalties are being paid to the state. He said this bill would provide such companies to consider some kind of a sublease program to sublease [the sites] to a smaller mining company thus making it a viable operation [capable of] $50,000 to $70,000 [in production] each year. REPRESENTATIVE STEPOVICH asked who would qualify under this plan. MR. POUND responded that a new mining operation or any mining company that has been in operation less than five years would qualify. REPRESENTATIVE STEPOVICH surmised that a company that had been in operation for more than five years would not qualify. MR. POUND replied that is correct. Number 1689 REPRESENTATIVE KERTTULA asked how the regulations would be rewritten to make the program work. MR. FOO responded that it would be necessary to sort out the distinction between the placer miners and hard rock miners. REPRESENTATIVE KERTTULA asked about current regulations and how the plan would work. She said she assumes some of the costs of developing the regulations are in the fiscal note. Number 1752 KERWIN KRAUSE, Geologist, Division of Mining, Land and Water, Department of Natural Resources, testified. He responded that with the exploration incentive credit Act, the largest mining companies as well as the small placer miners have availed themselves to that set of laws. Even though quite few people have filed applications to get preliminary approval on [this credit], the only mine that could actually take the credit will be the Pogo Mine, he commented. There have not been any applications from small miners, he said. He indicated this credit allows deductions of 50 percent from production, royalties, mine license taxes, or corporate tax requirements. REPRESENTATIVE KERTTULA asked if the department has implemented any regulations to run the incentive program. She clarified that she is interested in any sidebars that may have been established. She asked what sidebars the department plans to put into place to determine when it would be productive and correct to allow for the reduction. MR. KRAUSE responded that the department is not enacting any regulations for the exploration incentive credit Act. The division has a lengthy application process that has sidebars, he said. The department would scrutinize and adjudicate those applications. Mr. Krause told members that he could not say whether the department would use the same process with this proposed legislation. REPRESENTATIVE KERTTULA asked if the committee could be provided with a copy of the application for the exploration incentive credit Act. Number 1940 REPRESENTATIVE GUTTENBERG referred to page 2, lines 18, 19, 25, and 26, subsections (f) and (g), and he asked Mr. Foo what the basis was for establishing those numbers [with regard to the acreage amount]. MR. FOO commented that typically placer mine operations are smaller than hard rock operations. REPRESENTATIVE GUTTENBERG asked if there is a "break point" on permits or applications [reflected in the sizes set out in subsections (f) and (g)]. MR. FOO replied that he is not aware of any. REPRESENTATIVE STEPOVICH commented that anything that can be done to help miners is a good thing, so he hoped the details could be worked out. He asked how the rental fees are paid. MR. KRAUSE responded that the rental fee is a three-tiered rental plan in which the first 5 years is $25 for the smaller sized claims and $100 for the larger claims. From years 6 through 10 it is $55 for the smaller sized claims and $220 for larger ones. At the 11th year and thereafter, the rental is fixed at that point, and the rent is $130 for smaller claims to $520 for the larger claims, those are billed out every year on September 1, and every 10 years there is a consumer price index adjustment. CO-CHAIR DAHLSTROM announced her intention to hold the bill in committee while amendments are being produced and the members have an opportunity to review additional materials. [HB 344 was held over.]
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