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Big Value: Mining pays off for Nevada in jobs, more tax revenue

By DOUG McMURDO - Associate Editor
Wednesday, October 1, 2008 1:07 PM PDT

Jim Gratwohl/Florida Canyon Mine

ELKO - In news that should surprise nobody living along Nevada's gold belt, the mining industry had a banner year in 2007, according to a report released Tuesday by the Nevada Mining Association.

At a time when the state's primary industry, tourism, is at an all-time low, Tuesday's report demonstrate mining's value to the Nevada economy.

Prepared by Dr. John Dobra, director of the Natural Resource Industry Institute at the University of Nevada, Reno, the report is comprehensive and includes elements ranging from mineral production, to exploration, to taxes the industry paid. While the report officially addresses activity for all of 2007, Dobra included the first six months of this year in his conclusions.

Despite skyrocketing costs, particularly in energy, mining in Nevada is robust. The state currently ranks fourth in the world in gold production with 6.037 million ounces. China took over the top spot with 9 million ounces; Australia was second at 8.8 million ounces; and South Africa third with 8.7 million ounces.

According to Dobra, China's lead will likely increase as the country's government “actively promotes the industry,” while production in South Africa could slip behind Nevada because the mines in that nation are very deep and expensive to mine.

Here at home, gold continues to be king of the Silver State with the precious metal accounting for $4.2 billion of the $5.4 billion in mineral production values last year. The figure represented a $500,000 increase over 2006, according to the Nevada Division of Minerals.

While all mineral commodities prices increased, none did so with the dramatic flair of gold as price per ounce increased from an average of $603 in 2006 to $695 in 2007 to the $900 average over the last few months.

Dobra in his executive summary noted record copper prices averaging $3.23 per pound in 2007 and $3.70 the first six months of this year resulted in higher interest of copper production.

Silver production was down, but profits up thanks to higher prices - from $11.55 per ounce in 2006 to roughly $13 an ounce today.

Silver averaged $13.38 in 2007, according to Dobra.

Not all the news has been positive.

“While all of this is certainly good news for the industry and areas of the state that rely on the industry for economic activity, it is not to say the past year and a half have not been challenging for the industry,” reported Dobra.

Those challenges include a global shortage in equipment (such as drill rigs) and supplies. An acute worker shortage has also impacted mining “as the industry struggled to hire and train an expanding workforce.”

The cost to produce one ounce of gold increased from $365 in 2006 to $408 in 2007. Dobra said the 11.8 percent increase is less than half of what occurred in recent years, indicating “the industry is making significant progress in controlling costs.”

Net proceeds taxes paid by mines increased “dramatically” from $1.27 billion in 2006 to $1.53 billion in 2007. Other taxes, such as sales and use, totaled $199.5 million in 2007, up from the $192 million paid in 2006.

Employment increased from 13,840 mine-related workers in 2006 to 14,470 in 2007. Dobra points out the modest increase is a reflection of the ongoing labor shortage, not a slowdown in the employment needs of mines.

Exploration increased by a slight 1.8 percent in 2007, with companies spending $164.9 million in 2006 and $167.9 million in 2007. Dobra said this indicates “resources in the exploration sector are stretched to capacity,” but he noted exploration activity is at its highest level since the Division of Minerals began tracking exploration activity in 1995.

As things stand now, Nevada mines have at least 12 years worth of gold left in the ground. Proven or probable reserves, “which represent gold in the ground that prospectively can be mined at a profit,” represents 70 million ounces. “Over the past two decades reserve estimates have fairly consistently represented 10 to 12 years worth of production,” Dobra noted, “so there are no indications that Nevada is running out of gold.”

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