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Caution urged on tax dicussion

By DOUG McMURDO - Associate Editor
Wednesday, October 8, 2008 12:36 PM PDT

ELKO - An idea to raise taxes on Nevada gold mines in an effort to shore up a more than $1 billion state budget shortfall is a plan in need of more study, according to a pair of mining and government leaders.

“Gold prices are up from where they were,” acknowledged Vice Borg, Barrick Gold's vice president for corporate communications, “but they are very volatile day to day, and people don't realize our costs are up dramatically.”

Virtually every cost associated with hardrock mining, from labor, to fleet management, to energy has increased at least 100 percent since 2006, when gold began its meteoric rise, which topped out at roughly $1,000 in March. It is $903.10 today.

“During this legislative session (in 2009) they are going to look at any and all avenues of revenue,” said Elko County Manager Rob Stokes, “and looking at gold prices is understandable. But when you index to the price of gold you have to look at the cost of mining. You can't take just one component, gold prices, without taking expenses into consideration.”

Borg pointed out the company's flagship mine, Goldstrike on the Carlin Trend, has been mined by Barrick for 21 years -and for 32 years in total. “The high grade, easy to mine ore is long gone (at Goldstrike),” he said. “The cost to mine lower grade ore is higher. It costs more to recover gold.”

The expense of fleet maintenance is also at a record high, as is labor, said Borg, adding mining companies have to sustain capital in order to operate - and mining has not escaped the economic instability that spans the globe.

“Gold mining is not all that attractive to investors as a whole because they're not getting as high of a return as they expected,” said Borg. “The ongoing financial turmoil has impacted our shareholders because there's been a lot of selling.”

Barrick, one of the most stable companies in the world, has seen its stocks fall from $50 a share in May to $32. “It's declined more precipitously in the last month,” said Borg.

“When I came here in 2000,” said the county's Stokes, “gold was $300 or $400 an ounce, but gas was well under $2 a gallon and other traditional mining costs were a lot lower.” While an ounce of gold is worth more than $800 today, Borg pointed out the cost of mining an ounce is more than the price of an ounce was five years ago.

For Borg, the industry faces problems all along the economic front. “On one hand, if gold goes down to $700 or even $800 an ounce there's no incentive for investors,” he said. “They're already pulling money out of the industry. This is not a great picture for gold mining shareholders.”

Overall, Barrick has not been impacted by tightening credit markets as have smaller mining companies. Still, he is cautious. “We expect mining to remain stable for our employees,” he said. “Goldstrike is OK. We're looking forward to (expanding) Cortez Hills and we've hired a couple hundred folks from (Jerritt Canyon Mine) … but there's no industry that has not suffered through this financial crisis.”

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