Gold price shines in mining's new year

Mining is in the pits again - and that's good news for the industry.

The industry ended 2003 on a high note - a seven-year high for the price of gold, which hit $400 an ounce at the start of December and kept climbing to reach $410.45 an ounce at the end of the month.

That compares to $349 an ounce at the start of the year.

Silver, too, reached a peak, hitting $5.73 at the end of the year, compared to $4.55 at the same time a year earlier.

And earlier this month, the six-year high in the price of copper led Quadra Mining to purchase for $18 million the idle Robinson copper and gold mine near Ely, and GoldSpring Inc.

to commit to resume production in the upcoming third quarter at its Mike Copper Project in Winnemucca.

All that bodes well for the year ahead, say industry insiders.

"It augers well for 2004," said Russ Fields, president, the Nevada Mining Association in Reno.

"Everything seems to suggest that the price (of gold) has settled above $400 for awhile."

That's fueled an increase in claims, according to Doug Driesner, director of mining services with the state Division of Minerals.

Based on fees received, there were 104,700 mining claims made in the state's fiscal year 2003, which ran from July 2002 to June 2003.

That's up from about 89,000 claims in 2001.

And Driesner said there has been an 11 percent jump in claims since July.

He attributes the influx of claims to a more favorable political climate, too.

"The Bush administration made it a more friendly environment for mining companies.

For example, there was the mill site opinion," Dreisner said, referring to the opinion issued last month that said mining companies can claim an unlimited number of mill sites per mining claim.

The increase in the price of gold is driving exploration and prodction, too.

"We really needed the gold price to go above $350," said Rich Perry, vice president of North American operations at Newmont Mining in Carlin.

"Our business model is sustainable somewhere north of $350."

Newmont, the state's biggest gold producer that employs 2,700 statewide, this month gave the go-ahead to start work on its $205 million Phoenix project south of Battle Mountain.

In 2004, the company will work on engineering and permitting, with plans to begin construction in 2005 and production in 2006.

The company's other major Nevada project is its $195 million underground Leeville mine that has been in development since 2002.

Perry said the price of gold has hit a high for two reasons: production ceased when the price was $300 so demand is high, and fewer companies are conducting derivative hedging, which makes prices more volatile.

The other good news for the industry is that most of the increase in the price of gold is falling to the bottom line, because costs have increased much less rapidly than prices.

According to NMA's Fields, the weighted average cost, including mining, milling and trucking, is $206 an ounce, while non-cash costs, such as exploration, debt and overhead, is $60 an ounce - not significantly different than costs in 2002.

"Costs are creeping up slightly," said Jim Chavis, vice president of government relations for Placer Dome Inc.

"When you go deeper into the pit the longer the haul so that increases costs.

But that is predictable."

Placer Dome is in the early stages of two separate deposits at Pediment and Cortez Hills, said Chavis.

The company expects to produce about 1 million ounces of gold in both 2003 and 2004.

And its investors are happier than ever, said Chavis.

"Most mines in Nevada were using $400 for investors," said Chavis.

"So we're getting back to where we told investors we'd be.

They love us now."