Dwindling gold production costs jobs, tax revenues

Thursday, Sept. 14, 2000 | 11:32 a.m.

Nevada lost 1,320 mining jobs in 1999 with 11,920 people working in the business at the end of the year compared with 13,240 in 1998 and 14,660 the year before that, Dobra said.

"The theme throughout the report is that the industry is changing," said Russ Fields, president of the Nevada Mining Association.

He said at the association's annual convention last weekend that industry cost-cutting and consolidation are coming about because of market conditions that have kept gold prices down for three years.

Prices averaged roughly $279 last year, compared with $294 in 1998. Gold closed at $272.80 Wednesday on the New York Mercantile Exchange, down 10 cents from Tuesday's close.

"Production is down and costs are down, and the changing corporate landscape is an important issue," Dobra told the Elko Daily Free Press.

Dobra, who heads the Natural Resource Industry Institute at the University of Nevada, Reno, where he is an associate economics professor, said consolidation in the industry will make it healthier in the long run.

He said that means projects like the Phoenix Project proposed by Battle Mountain Gold Co. have a better chance of going forward, because Newmont Mining Corp. and BMG plan to merge.

The changes also include the emergence of international players such as AngloGold, the world's largest gold producer, as operator of the Jerritt Canyon Mine north of Elko and Gold Fields of South Africa, which is merging with Franco-Nevada Mining.

Placer Dome Inc. acquired Getchell Gold Corp. last year.

Along with the increase in mergers, low gold prices also resulted in a $30 million tax reduction in 1999, Dobra said, hurting both the state and local governments.

Net proceeds of mine taxes totaled $24.94 million in 1999, compared with $33.27 million in 1998 and $29.86 million in 1997.

Adding in the other taxes the industry pays, including sales and use taxes, property taxes and business license taxes, Dobra said the total amount of taxes paid in 1999 was $102.29 million, compared with $135.9 million in 1998 and $125.47 million in 1997.

Fields said that Nevada also failed to continue its recent succession of production records last year with 1999's output of 8.26 million troy ounces falling 600,000 ounces short of 1998's 8.86 million ounces.

Nevada remains the third largest gold producer in the world, behind South Africa and Australia.

The industry also found a few new notches in its belt-tightening. Production costs averaged $167 an ounce in 1999, down from $179 in 1998 and $216 in 1997.

"While these trends in cost cutting are encouraging on their face, they mask two disturbing trends," Dobra said.

One is that the reductions are, in part, achieved by several higher cost mines suspending mining. The other is that distribution of costs is highly skewed by several larger producers with very low costs.

"Over 2.5 million ounces of Nevada production were produced for cash production costs of approximately $100 per ounce or less," he said.

"However, 10 of the 34 operations in the state for which cost data is available had total production costs greater than the 1999 average price of $278 and lost money for the year."