Costs rise for gold miners

The higher prices that are boosting Nevada's mines may mask some challenges that will confront the industry whenever prices dip again.

The biggest challenge? Production costs are on the rise and aren't likely to retreat if gold prices fall from the $370- an-ounce levels of recent days.

Dr.

John Dobra, director of the Natural Resource Industry Institute at the University of Nevada, Reno, says the cash cost of producing an ounce of gold in Nevada rose by 15 percent during 2002 to $206 an ounce from $179 a year earlier.

That sharp increase in production costs doesn't get much notice when miners are making money and most are making good money as gold prices averaged $310 an ounce during 2002 and $350 an ounce in the first half of this year.

"In spite of higher costs, the industry is currently much healthier than in 2001 because of higher gold prices," Dobra wrote in an economic overview of the industry he prepared on behalf of the Nevada Mining Association.

But rising costs squeeze margins even when prices are high, and the squeeze will get tighter if prices decline.

A big factor in the rising costs, Dobra said, is higher prices for energy.

Gold Fields Mines Service estimates that higher costs for diesel fuel and electricity by themselves accounted for between $5 and $10 of the $27-anounce average increase in production costs in the state during 2002.

Then, too, Dobra said mining companies during the tough times of the late 1990s typically went after the easiest and most profitable ore bodies on their properties.

Today, mining is getting more difficult and more expensive.

That trend is particularly noticeable in the shift from strip mining to underground operations.

As recently as 2001, 20 percent of the mining in Nevada was underground.

Last year, the figure had risen to 27 percent and Dobra said the trend is likely to continue as easily stripped properties are mined out.

Other factors that push costs higher are increases in insurance rates including the cash bonds now required for exploration as well as operation and a rising number of legal challenges.

"Environmental groups are routinely challenging applications for all permits in the administrative process and then, if permits are granted, suing the state and federal agencies responsible for issuing permits," Dobra said.

The legal challenges are particularly noticeable today as mining companies seek numerous permits to open or expand operations to take advantage of higher prices.

Across the gold belt of northern Nevada a belt that roughly tracks Interstate 80 companies ranging from Newmont Gold to Hecla Mining are gearing up for higher levels of mining.

And that will mean more jobs jobs that paid an annual average of $62,334 last year, nearly double the state average.

Mining jobs and their high pay are particularly important in job-starved rural counties.

Dobra said 8,860 people were directly employed by mining companies in Nevada during 2002, a decline from 10,100 a year earlier.

Gold production in the state last year totaled 7.73 million ounces, down from the 8.13 million ounces a year earlier.

Dobra said 17 major mines are operating in the state, about half the number of a decade ago.

Most of those mines were the casualty of prices that fell as low as $252 an ounce in July 1999.

Even so, Nevada's gold production accounts for about 80 percent of the U.S.

today, and the state is the world's thirdlargest gold producer behind only South Africa and Australia.