Utah hasn’t been fully paid for minerals taken from the Great Salt Lake, a recent audit found, despite a state agency knowing about such discrepancies for over a decade.
The Division of Fire, Forestry and State Lands oversees mineral extraction on the Great Salt Lake, including levying mining fees called royalties. The division collects royalties on sodium chloride, magnesium, magnesium chloride, potassium sulfate and lithium carbonate.
As mandated by the Legislature, money earned from extraction on the lake funds various projects across the lake, like removing invasive species, restoring vegetation and resolving land management issues.
“The division is responsible to make sure that the state gets a fair return on the mineral resources on the Great Salt Lake, and this audit has proven that there are some deficiencies in that,” said Jamie Barnes, the division’s director. “We will make sure that those deficiencies are collected where they are due and that the state is made whole.”
Lynn de Freitas, executive director of Friends of the Great Salt Lake, said that the audit’s findings will support sustainable management of the lake moving forward, especially as companies look to extract new minerals, like lithium, from the lake.
“We have to stop reckoning with the Great Salt Lake and its future as part of a ‘Wild West’ mentality,” she said.
“[The Great Salt Lake] is indeed valuable, and valuable beyond just putting money in the pockets of extractors,” de Freitas said. She later added, “Great Salt Lake is indeed valuable on a variety of levels, which require all who reap the benefit of the system to use responsible and sustainable practices.”
Lost money from inconsistent royalty rates
Mining companies have paid different royalty rates for the same minerals for years, and the division has inconsistently tracked and verified those payments, the audit found.
For example, the state has lost out on $832,000 over the last five years due to charging varying royalty rates for sodium chloride extraction — a deficit of over $166,000 annually.
When renegotiating a royalty agreement in 2020, the division charged an incorrect royalty rate for sodium chloride, failing to follow administrative rules. As a result, the state has lost out on $59,000 in royalty payments.
Another company extracting sodium chloride from the lake didn’t update the royalty rate for sodium chloride for three years in a row, resulting in a shortfall of $308,000 to the state. The division failed to catch the mistake.
A Performance Audit of Mineral Royalty Agreements: An Examination of Mineral Production on the Great Salt L... by The Salt Lake Tribune on Scribd
Barnes said that some of the mineral contracts that still govern extraction on the Great Salt Lake date back to the 1960s.
“It was a different day on the Great Salt Lake back then. All operators weren’t treated equal across the lake,” she said, “so those agreements later are held by production and they have different royalty rates.”
Barnes added that the division is looking at ways to renegotiate and update those older contracts.
Allowing varying deductions
The audit further discovered that the Division of Forestry, Fire and State Lands applied inconsistent deductions — amounts that companies can deduct from their royalty payments. These include bags, boxes, receptacles and other shipping costs, according to state administrative rules.
A 2011 audit found that the division allowed deductions for storage and import taxes for one company, neither of which are outlined in administrative rules. Despite that decade-old finding, the problem persisted: the division did not prevent the company from deducting those costs from their royalty payment in the following years.
As a result, that company continued to deduct storage costs from the royalty amount owed to the division — even though they were no longer producing minerals from the lake — to the tune of $560,000 each year over five years. The cumulative total deducted was $2.8 million.
“There definitely was previous audits in the division and some of those findings weren’t carried out,” Barnes told lawmakers last week, “and I can’t tell you why that did not happen.”
The audit reported that over the last five years, companies have self-reported a total of $112 million in deductions — “and remain absent of Division guidance or validation.”
There were also discrepancies in when the division charged extractors. A mineral’s value typically increases throughout the mineral development process, from extraction to final product.
One operator was charged royalties when it was extracting brines, while another operator was charged royalties on their final product, resulting in disparities.
“We have a careful balance between industry and public trust on the lake and we don’t want to harm either side of that,” Barnes told lawmakers.
Mineral operators are “expected to act operate in good faith,” when they self-report royalty payments and deductions for extraction on the Great Salt Lake, the audit says. But the division also has the responsibility to ensure compliance, auditors said.
Making improvements
The Division of Forestry, Fire and State Lands has already begun implementing changes based on the division’s findings, Barnes said.
She reported that the division has rolled out a new database to help track payment information. The division is also reviewing findings from past audits.
Another change will be filling a position in the division to specifically focus on mineral royalties
and contract management. Barnes said she expects a hire this summer, and in the meantime, the division is verifying current contracts for compliance.
HB453, passed by the Legislature during the 2024 session, entitles the division to take action against companies that aren’t paying the state a fair return for the minerals they take from the Great Salt Lake using penalties and fines. The audit recommended that the division take advantage of its regulatory authority to ensure compliance.
Barnes added that the audit will inform how the division manages new mineral extraction on the lake, particularly lithium.
“We need to make sure that we’re doing things right with regard to the current minerals that we’re taking off of the lake,” she said, “before we start taking more minerals and issuing new royalty agreements.”
Editor’s note, Jun. 28, 1:50 p.m.: This article was updated to clarify Lynn de Freitas’ remarks.
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