ELKO — Nevada’s mining industry’s prepayment of net proceeds taxes totaling roughly $123 million for 2010 was far more than expected, John Dobra, director of the Natural Resource Industry Institute and an associate economics professor at the University of Nevada, Reno said Wednesday.
“It’s so big,” he said, commenting he didn’t believe the figure the first time he got it from the Nevada Department of Taxation. “Eventually, I realized it was true.”
Dobra attributed the higher-than-expected total for the prepayment of 2010 taxes to higher gold prices.
Prices are currently in the range of $1,250 an ounce and have been more than $1,000 continuously since October 2009, while the average gold price in 2009 was $972 per ounce.
The Nevada mining industry agreed to make a prepayment of its 2010 net proceeds of mining taxes to help the state with its money crunch.
“From the standpoint of the state’s coffers, it’s a big deal, but not when the state is facing a $3 billion deficit,” Dobra said as he talked about the Nevada Mining Association’s new Economic Overview of Nevada’s Minerals Industry.
Net proceeds of mines payments for 2009 totaled $97,578,000, according to the report, compared with $91,856,000 in 2008 and $75,694,000 in 2007.
Nevada Mining Association President Tim Crowley said Wednesday the new report shows that mining production is “trending down, but that is a function of the higher gold price. I was not surprised at that. Exploration spending is down, but they are finding more gold.”
Nevada produced 5.64 million ounces of gold in 2009, according to the Nevada Division of Minerals, which released the total earlier this year. The 2009 production compared with 5.7 million ounces in 2008.
Dobra stated in the report that the lower gold production because of higher gold prices is because mines can produce gold from lower-grade deposits and still profit.
“At $1,250 gold, all those waste dumps become gold. That’s what happens,” Dobra said.
The new report states that Nevada’s total gold production is now sixth in the world behind China, South Africa, Australia, Russia and Peru. The state’s gold production was in fifth place in 2008.
Dobra said the other big news in the new report is that for the first time in eight or nine years production costs are down.
He said big mines such as Barrick Gold Corp.’s Goldstrike Mine, Newmont Mining Corp.’s Phoenix Mine, Barrick’s new Cortez Hills operations and other mines “did a good job of containing costs and the loosening up of supply costs” also contributed to the lower prices.
Mines were having problems buying steel, tires and equipment during a shortage two and three years ago.
Total cash costs averaged $508 an ounce in 2009, down from $525 per ounce in 2008.
On the down side, the report shows that mining employment is down, with direct mining jobs totaling 11,609 in 2009, compared with 14,600 in 2008 and 14,470 in 2007.
“Employees are down because of the industrial minerals sector,” Dobra said.
Industrial minerals include gypsum, lime, aggregate and others that are used in construction. A gravel pit might employ 100 to 200 people, for example.
“They were hurt badly by the recession and still are,” he said, but the precious minerals are “good time Charlie.”
Metal mining wages were up, averaging $81,755 a year, compared with $78,567 in 2009 and $80,236 in 2007. The average earnings for all mining also were up, at $78,727 a year in 2009, compared with $69,313 in 2008 and $67,392 in 2007.
The average earnings of all industries statewide was $42,746 in 2009, according to the report.
Dobra said gold at $1,250 an ounce breaks another psychological hurdle, after the one at $1,000 an ounce, and the next hump will be for silver prices to reach $20 an ounce.
“That will make a big difference in Nevada mining,” he said.
Nevada gold mines produce silver as a byproduct, and Coeur d’Alene Mines is hoping to begin silver production early next year at its Rochester Mine near Lovelock. Rochester is primarily a silver mine.
On the exploration side, the Nevada Division of Minerals reported exploration expenditures from survey respondents totaled $110 million in 2009, down from $158 million in 2008.
The division’s figures don’t reflect all of the smaller exploration companies and their millions of dollars in expenditures, however, because mainly the larger mining companies respond to the survey, Dobra said.
Still, “new reserves are way up, and that’s not surprising,” he said, adding that the companies have enough gold for production over the next 13 years without new findings.
Proven and probable reserves of gold increased in 2009 to more than 75 million ounces from slightly more than 70 million ounces at the end of 2008, according to the report.
The increase in the state’s mining claim fees that the Nevada Legislature enacted for a one-time shot hurt exploration, Dobra said.
Crowley said the new report contains something new this year, a comparison of mining taxes with other states, and “it shows we are on par with other states.”
In the report, Dobra uses a fictitious mine with gold production of 250,000 a year for the state comparison. The mine would sell gold for $1,100 an ounce for gross revenue of $275 million and net profits of roughly $50 million a year.
The annual mining taxes on this mine would be $3,187,500 in Nevada, which is fourth from the highest, compared with $7,460,750 in Montana, $6,307,000 in Wyoming and $3,497,000 in Alaska.
The lowest mining tax rate is in New Mexico, where the hypothetical mine would pay $275,000 in mining taxes. In between, Colorado taxes would be $2,880,000, Utah, $2,145,000, Arizona, $1,250,000, Idaho, $802,500, and California, $534,209.