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Vol. 18, No. 30 Week of July 28, 2013
Providing coverage of Alaska and Northwest Canada's mineral industry

Mining News: Debate turns to production royalties

Discussion about the Pebble Project is shifting from whether we should allow it to proceed to how big the state’s take should be

J. P. Tangen

For Mining News

Many concerned Alaskans may have read former State Senator Clem Tillion’s op-ed piece in the July 2, 2013, issue of the Alaska Dispatch concerning the royalty that might be paid to the people of Alaska should the Pebble Project one day become a mine. Sen. Tillion argues that at current rates, the royalties to the state would be insufficient to justify allowing the Pebble Project to go forward. His message seems to be that developing Alaska’s resources, when properly permitted, should be approved or disapproved based upon, among other things, what the return, not in taxes but in royalties, is to the state.

I have been acquainted with Sen. Tillion for many years, and respect him deeply. But he is wrong to carve out a position like he has with this piece. His argument is premised on error.

First, Sen. Tillion analogizes Alaska’s mining industry to the oil and gas industry in an unfortunate way. Economically speaking, mining is very dissimilar from oil and gas because of the long lead time before production – in the case of the Kensington Mine it was decades – and the relative tenure of the projects. For instance, the massive oil fields on the North Slope, while they have been pumping hydrocarbons for nearly four decades, probably are mature and, unless there is a renewed demand or a political sea change, are at risk of being shut down in the foreseeable future.

The great mines of Alaska – Red Dog, Usibelli, Fort Knox, Pogo, Greens Creek and Kensington – arguably will survive the oil fields by generations.

Likewise, when the oil and gas industry elects to close its doors, the infrastructure will probably vanish, whereas, the legacy of historic mining has been Fairbanks, and Juneau and Nome – permanent infrastructure that supports a commercial regional center.

Next, it is relevant to point out that the investment made by miners is labor intensive. While the Alaska oil and gas industry is famous for keeping the residents of Dallas well-fed, at the Red Dog Mine, the vast majority of the workers come from and live in Kotzebue and environs. Those paychecks circulate in the local community. The stimulus to the local economy does far more for the community than does hat-in-hand begging for revenue sharing.

In a certain sense, it is fair to assert that when the government puts its hand into your pocket, it is a tax. From the perspective of the ratepayer, it matters little whether it is called an income tax or a license fee or rent or royalty or anything else that our good legislators choose, it all goes down the same black hole.

Alaskans, of course, are fond of arguing that the Permanent Fund is different, but the reality is that we are a resources state, and if we don’t develop our resources, we too can be “Detroited.” Rampant social programs such as education and social services are expensive and when oil and gas are gone, it will be the great mines that will have to pay the freight.

Right now, the Alaska mining industry, when operating on state ground, is exposed to three such hits by government over and above the corporate income tax, which savages virtually every successful business. Miners must pay a mining license tax, they must pay rent for their occupancy and use of the ground, and they must pay a production royalty.

It is trite to say that because the market for our resources is global, Alaska’s miners must be competitive to survive; however, it is the reasonable hope that for the long run – measured in generations – the government’s cut will remain stable and predictable. Only then can investors justify risking the hundreds of millions of dollars it takes to open a great mine.

We have six great mines operating in Alaska today; there are five more moving toward production, and many, many more after that. Now is really a lousy time to start fiddling with the existing system for raising state revenues from this historic contributor. Instead, now is the time to take the position that the existing structure works. It encourages people to come into the country and spend their money on local labor and services; it stays around for a long time; it tends to be not just a good neighbor but a positive, progressive influence in many ways; and, at the end of the day, it leaves a legacy of prosperity.

In the Anchorage Daily News on July 15, 2013, Dr. Robin Samuelson, a lifelong resident of southwest Alaska who has held many leadership positions in the Bristol Bay Region, juxtaposed the Bristol Bay fishery to the proposed Pebble Project. Implicit in Dr. Samuelson’s presentation is that the two industries are somehow in conflict – an argument often stoked by Pebbliphobes; however, what was striking, is the statistics he used to support his contention that the success of the Pebble Project would be at the expense of the fishery.

Dr. Samuelson asserts that commercial fishing accounts for over 72,000 jobs in Alaska. Since he was comparing commercial fishing to mining, presumably he was comparing apples to apples when making such a statement. Dr. Samuelson goes on to observe that the tax revenue from commercial fishing in Alaska exceeds the tax revenue that the state derives from mining.

Next, he points out that the fishery is worth $1.5 billion a year and supports 12,000 fishing and processing jobs in the Bristol Bay area alone – leaving the other 60,000 fisheries-based jobs to come from other regions of the state.

Dr. Samuelson, like Sen. Tillion, is a respected Alaskan, and I take both men at their word. Clearly the fisheries are simply not giving back its fair share to the people of Alaska. Although the royalty burden on the great mines probably does not need adjusting at this point, we must have the conversation now as to the adequacy of the royalty the state is receiving from the fishing industry, especially since 56 percent of the nation’s seafood harvest comes from Alaska.

We all know that the oil and gas industry is waning. None of us know whether the Pebble Project will ever gain traction. A small royalty on the fish caught in our nearby waters could make a substantial contribution to our Permanent Fund. We look forward to learning more about a Tillion-Samuelson proposal for an enhanced royalty on Alaska’s fisheries.



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