Issue Updates


Summary: IMC Chemicals (IMCC), the lessee for Searles Lake mining operations, is
applying for a temporary royalty rate reduction from five percent of the gross
value of sodium and potassium compounds to two percent of the gross value which
is the minimum royalty rate allowed by regulation. BLM is expecting to receive
a complete application from IMCC in April 2002. A reduction in mineral
royalties would adversely affect the Trona Unified School District which
benefits from the mineral royalties. The basis of the royalty rate reduction
request, how this request will be evaluated, and the possible effects on the
Trona school will be described.

Issues: IMCC produces approximately 1.5 million tons annually of soda ash, borax, and
related products from thirty federal mineral leases and IMCC's private lands
located on Searles Dry Lake, Trona, California. These products are used for
water treatment, petroleum refining, detergents, circuit boards, glass,
fiberglass, ceramics, paper products and other industrial use. IMCC is the
second largest employer in the area with 750 employees and about 400
contractors. Mining started at Searles Dry Lake in the 1920s and has continued
to the present time, with a long term life of mine expected based on the large
quantities of mineral resources available in the unique depositional geologic
environment of Searles Dry Lake.

IMCC is applying for a temporary royalty rate reduction from the five percent
specified by lease terms in accordance with Federal regulations (43 CFR 3513 --
Waiver, Suspension or Reduction of Rental and Minimum Royalties). The basis of
the application is that, according to IMCC, lease operating costs exceed lease
production revenue. IMCC must also demonstrate that a royalty rate reduction
would be in the interests of conservation and will encourage the greatest
ultimate recovery of the mineral resources. The factors which have contributed
to the decision of IMCC to apply for royalty relief are high environmental
costs, high energy costs, declining prices for their products, and a decline in
the economy since events of September 2001. Environmental concerns raised by
two State of California agencies, the Lahontan Regional Water Quality Control
Board and the California Department of Fish and Game, have required high
environmental expenditures by IMCC to come into compliance with increasingly
strict standards. Improving plant processes, better treatment of brines
recirculated to the lakebed, and waterfowl protection efforts have costs about
$15 million and these costs are expected to continue for some time. California
energy problems have affected IMCC as well. IMCC said they have lost $30
million in borax and soda ash sales over the last two years, and that sales
decreased by 25% following the September 11 tragedy.

BLM will evaluate the IMCC application carefully, including an economic
analysis by a BLM Mineral Economist and an evaluation of conservation and
recovery of the mineral resources by BLM mining engineers and geologists. In
addition to the technical team, the BLM Washington Office Lead will review the
application. Guidance for the evaluation is found at IM No. 90-380 Amended
Royalty Rate Reduction Guidelines for Coal and Noncoal Solid Minerals. The
decision may be to allow the royalty rate reduction to two percent, to deny the
royalty rate reduction, or to allow a royalty rate reduction to less than five
percent but more than two percent. The decision will be sent to the company
within seven months of the time BLM has a technically complete application.
The BLM technical team and the WO Lead will make their recommendations to the
BLM State Director, and the State Director will make the final decision
regarding the royalty rate reduction application.

IMCC pays about $3.5 million annually in mineral royalties to the Minerals
Management Service. The MMS puts half the royalties in the General Treasury
and returns the other half to the State of California for the benefit of local
public education. Of the half which is returned to the state, 85% goes to the
direct benefit of the Trona Unified School District and the other 15% into the
community college system. The present amount paid to the Trona School is about
$1.5 million per year. If the royalty rate were reduced to two percent, the
royalties to the school would be reduced to about $600,000. The school also
lost royalties beginning in 1996 when IMCC shifted one of their wellfields onto
their private land where the richest deposit of borax was present; prior to
this shift the school received about $2.6 million per year. Other financial
pressures face the school as well. Over the last 20 years the school
enrollment (K through 12) has declined from over 1,000 students to 411
students. Salary costs per teacher in the Trona School is about 25% higher
than cost per teacher in the nearby community of Ridgecrest. The school has
run at a deficient and does not have the 4% reserves which are required; their
reserves are only 1.2 percent. There are 24 teachers plus administrators in
the school (K through 12), and 14 teachers have received notice of possible lay
off. The estimated class size for the 2002-2003 school year would change from
the present ratio of 14 student to one teacher to a new ratio of 36 students
per one teacher. If part or all of the requested royalty rate reduction is
approved by BLM, the new temporary (two years, renewable) royalty rate will be
applied retroactively to the start of the first royalty reporting period
following the receipt by the BLM State Office of a complete application in
accordance with IM No. 90-380. IMCC would have a royalty credit from MMS for
the difference between the five percent rate on the lease terms and the
temporary reduced rate. If the royalty rate reduction is not approved, IMCC
would continue paying at the five percent royalty rate.

Status: IMCC is facing genuine economic challenges in the operation of their Searles
Lake mining operations. We cannot predict, however, what the outcome of their
application will be, and do not have a complete application as of February 21,
2002. When the application is complete, the greatest unknown factor is how the
allowable and non-allowable costs per IM No 90-380 will affect the economic
analysis. The school is facing genuine economic challenges due to declining
mineral royalties, declining enrollment, high costs per teacher and limited
reserves. The very real impacts to the school are not a part of the technical
evaluation of the royalty rate reduction application.

- April 22, 2002

News.bytes, issue 55 - BLM California, 4/18/02