Fortune Under the Desert

Mining company benefits from government bargain

THE PLAIN DEALER
Sunday, May 22, 1994

By KEITH EPSTEIN
PLAIN DEALER BUREAU

WASHINGTON
In the harsh desert of western Utah south of the Great Salt Lake, a desolate plateau of scrub and sagebrush stretches to the horizon. It is home to gophers, jackrabbits, rattlesnakes and the occasional coyote. Groundwater is too brackish for crops. The nearest house is 40 miles away.

“Nobody’s ever wanted to homestead out there, and nobody ever goes to a  place like that to live or have fun,” observes industrial geologist Lee Davis. “To the ordinary fella, it would seem worthless.”

But this desert, owned by America’s taxpayers, conceals a vast fortune.  Beneath 2,548 acres alone is a rare bertrandite ore, which, when processed,  could be worth up to $15 billion.

Brush Wellman Inc., a Cleveland-based mining company, wants to buy those  acres from the Interior Department’s Bureau of Land Management for a mere  $26,487 – around $10.40 an acre.

That would be one of the richest lodes ever purchased from the government – worth potentially almost as much as last week’s highly publicised sale of land with perhaps $18 billion in gold to a Canadian mining company.

berylliummineutah

Mine in utah

“The biggest  gold heist since the days of Butch Cassidy,” Interior Secretary Bruce Babbitt  complained on Monday as he transferred 1950 acres in Nevada to Toronto-based  American Barrick Resources Corp. for a mere $9,765. “It is a ripoff.”

Babbitt is powerless to stop the sale because, for many years, Congress has declined to curb sales of precious public property. Dirt-cheap prices meant  for grizzled miners of 122 years ago are still on the books.

Babbitt vows to insist upon replacing such sales with royalties that  produce a “reasonable return” to taxpayers. But theHouse and Senate are far  from agreeing on how to do so.

While Brush Wellman disputes some figures in this article, arguing that its high cost of exploration and development should be considered, the company  agrees with the bottom line: By paying the government just thousands, it can  obtain land worth millions.

“Nobody’s disputing that,” said Hugh D. Hanes, vice-president of  environmental and government affairs. “It’s a relatively small amount  (returned to the Treasury) in comparison to what’s in the ground.”

Similar stories are unfolding elsewhere. In Oregon, for one, Denver-based  Newmont Mining Corp. hopes to spend $1,560 for 60 acres containing most of an  estimated $373 million in gold – and tens of millions more in silver.
For five months Western senators have been stalling final action to replace the 1872 mining law. While they dawdle, companies continue to wrest from  public lands some $1.7 billion in gold and other minerals each year – with  little or no direct compensation to the federal treasury.

That amount is only the General Accounting Office’s guess. Government  officials don’t know how many millions of tons of precious minerals there are  on federal lands, or what it’s all worth – complicating any attempts to set a  fair asking price.

“We don’t have good facts,” Interior Secretary Bruce Babbitt acknowledges.  Babbitt told a congressional committee he was “really astonished” when trying  to learn from his own employees the volume and value of mineral production on  public lands, data that companies consider confidential.

“The answer I got was, `we don’t have any’,’ Babbitt said.

The tale of Brush Wellman’s beryllium bonanza illustrates how government  and corporations often cooperate to advance corporate interests, sometimes  without fairly compensating taxpayers.

At stake is the future of 432 million acres of publicly owned lands – and  the untallied treasures they contain. These lands are managed by the U.S.  Forest Service and Bureau of Land Management.

This article was assembled using corporate documents, government records,  interviews with company insiders, and a computer-assisted analysis of $131,336 in campaign contributions to members of Congress by Brush Wellman executives,  lobbyists and committees.

Checks are not illegal

The checks that flow each year to politicians from Brush Wellman and its  employees are neither illegal nor random.
As Hanes acknowledged: “The company tends to support those people that are  supportive of the company.”
Two company supporters, Republican Reps. James Hansen of Utah and Paul  Gillmor of Port Clinton, have received $41,400 from Brush since 1988.

An example of that support occurred last November, when the duo came within 45 votes of getting the company exempted from House mining rules requiring  higher fees and royalties.

The congressmen argued that, without a financial break, the company might  be forced to shut down the mines. America’s only domestic source of beryllium  would thus be jeopardized – and that, they said, elevated the exemption to a  matter of national security.

But Pentagon documents show that the military is “over goal” in its  stockpile of beryllium metal. Nor does it need beryl ore or a beryllium-copper alloy.

Far from being concerned about secure supplies of Brush Wellman’s products, the Pentagon now wants to sell 24,221 tons of beryllium materials worth $122.9 million.

Explains Beth Offenbacker, spokeswoman for the National Defense Stockpile  Center: “We feel we don’t need it.”

Brush Wellman, Gillmor and Hansen all say they intended only to fight for  workers’ jobs and the local economy.

They say they’ve done nothing that violates official rules or laws. By all  accounts, they are correct – and for that they can thank not only campaign  finance laws, but the General Mining Law of 1872, a statute dating to the  administration of Ulysses S. Grant.

Brush coverts bertrandite

Brush Wellman’s sophisticated methods of extracting a fortune from the  rocks by refining minerals into products with far-reaching technological  applications would have dazzled even the hardiest, most crusty “Forty-niner.”

Like other modern mining companies, Brush uses a chemical process to leach  ore. Like other modern companies, it literally can move mountains and create  cratered moonscapes.

Brush converts the bertrandite ore, found in Utah, Brazil, Africa, India  and China, into light-weight, harder-than-steel beryllium. Its uses include  satellites, nuclear reactors, airplanes, computers and cars.

Brush Wellman’s products are in nuclear warheads. Every strategic missile  in the U.S. arsenal contains beryllium, as did the “smart bombs” dropped on  Iraq during the Gulf War.

What President Grant had in mind – around the time of Custer’s last stand – was to encourage exploration and development of the western wilderness.

He wanted it used, opened up and settled. Thus, he offered to “patent”  cheap land titles – for miners, not multinational conglomerates that sometimes scar the landscape and foul waters. But Utah and federal mining officials say  that Brush Wellman’s environmental record is impeccable – better than law  currently requires.

For years, aggressive lobbying by mining corporations and railing by  western politicians has thwarted attempts to revise the anachronistic law.  Politicians such as Sen. Pete V. Domenici, R-N.M., often complain of a “war on the West.”
But the Clinton administration’s vow to seek market-based fees for use of  federal lands for mining, grazing and timber-harvesting has created new  pressure for reform.

“Just the first step in an assault on the west,” Sen. Conrad Burns,  R-Mont., complained during last year’s debate on ranchers’ fees.

Clinton, who made electoral gains in the usually Republican west, isn’t  likely to go too far in alienating his newfound western friends. Nor is the  public lands brawl strictly east versus west.

Today’s mines are more likely to be run from corporate boardrooms in  Toronto or Cleveland. In fact, 33 companies now mining on public lands  purchase $901 million in equipment and supplies that translates into jobs in  the east, a fact not lost on eastern congressmen.

In Ohio, four companies besides Brush – Oglebay-Norton, Cleveland Cliffs,  Dresser Industries and AEP – have mined on public lands. A fifth, Timken, is a major supplier of heavy mining equipment.

House votes for royalty

In November, the House voted overwhelmingly to end the practice of selling  cheap land to mining companies.

Instead, companies would pay the government 8% of the processed minerals’ value.

Amounting to some $100 million a year, such a royalty – significantly lower than the 12.5% coal, natural gas and oil companies have been paying for years  – would hardly make a dent in the national debt.

And it would only begin to help pay for cleanups of thousands of old  abandoned mines, many of which are fouling land and waters in locations  throughout the Western United States.

Over time, such a royalty would have cost companies such as Brush Wellman  hundreds of millions.

Thus, the industry supported a Senate-backed end to the land sales that  imposes what environmentalists regard as a “sham” royalty – 2% of the value of minerals before they are processed.

Companies also could deduct major business expenses.

Since then, key members of the House and Senate who are supposed to reach a compromise have only dawdled, and now lobbying has intensified. Last month,  for instance, Hanes made his pitch to key members as part of an  industry-sponsored “Hardrock Minerals Day.”

Meanwhile, mining companies are wisely hedging their bets by seeking to  “patent” their claims more quickly than ever.

These are legal and  administrative steps they must take before the government grants them title to the land.

As Congress began seriously debating an end to cheap land sales, mining  companies scrambled to start applying for purchases. There’s a “patent rush”  out there – a frenzy to buy before it’s too late.

In California and Nevada, for instance, more than 100 applications are  pending; a few years ago, there were never more than 40 at any time.

“Companies know that something will eventually happen (in Congress), and  with a foot in the door they may be able to keep that door open,” observes  Walter Phelps, who heads the Bureau of Land Management’s office in Utah.

Interior Secretary Babbitt has tried to stall some sales – including the  gold mine now lost to the Canadian company – until Congress passes a new  mining law. A federal magistrate criticized Babbitt, saying this amouted to  little more than a “shameful de-facto moratorium” on issuing mining patents.

Brush Wellman officers, meanwhile, hope that the company is far enough in  the process that the eventual reform of mining laws will not apply; the  company will be “grandfathered” in. If not, the company threatens a lawsuit.

“Our concern,” says Hanes, “is protecting the investment we’ve made in the  patenting process.”

By that, he means the money spent on lawyers – about $1 million – to  prepare eight different applications. Moreover,Hanes says the company has  spent more than $8 million on exploration, and that investing in Utah was a  “bet-your-company” move in the first place.

“Hardly a giveaway,” he said. “We’re not getting a free ride. The ore we  mine on public lands requires a major up-front investment.”

Regula seeks reform

“A specious argument,” responds Rep. Ralph Regula, R-Navarre. “First of  all, they don’t have to buy the land to mine it. And their investment is part  of doing business whether they own the land or lease it. The fact is, nothing  goes to the government.”

For several years now, Regula has persuaded his House colleagues to ban the cheap land sales – only to be stymied in the Senate where, he complains,  “westerners always kill any mining reform. It’s outrageous.”

To date, some 3.2 million acres of federal land – an area the size of  Connecticut – have been sold, some for as little as a few dollars an acre.

And, Regula says, some land has even been sold back to the government after companies have squeezed what they could from the land – at a profit.

Davis, who was there on the plateau of sagebrush at the beginning of the  beryllium mine, in 1968, complains that environmentalists and eastern  politicians have distorted the issue.

“The idea that mining companies are getting ground cheap and not paying the government much is completely wrong,” says Davis, who was Brush Wellman’s  chief geologist until retiring three years ago. “We pay an awful lot of state  taxes and we help a lot of economies locally.

“And,” he adds, “we’d be happy to give the land back to the government.  After we’ve mined it.”