Falling prices worrisome to state's mining industry

Last year was a see-saw ride for Bruce

Kennedy, president and chief executive officer

of the Robinson copper mine just west of Ely.

And he's not the only mining executive

facing an uncertain future.

After record-setting production levels in

the first two quarters of 2008 42 million

pounds of copper in the first quarter, and 44.8

million in the second fortunes at the

Robinson mine clouded in the fourth quarter

as global copper demand evaporated and its

per-pound price withered.

Since July copper prices on the London

Metal Exchange have plummeted more than

60 percent to hover near $1.50 a pound in

early December, Quadra Mining, parent company

of the Robinson mine, predicts the mine

still will deliver 130 million pounds of copper

and 125,000 ounces of gold for the coming

year but at what price?

The company says hedges will insulate the

mine from current market conditions but

back in 2006 the decision to lock in copper

production on the futures market hurt Quadra

to the tune of $143 million as copper prices

skyrocketed.

"We have some hedge production for the

first half of this year in the $2 range and

above,"Kennedy says, adding that he's made

six budget revisions in the past two months.

"We have modified our mine plans and our

mine sequencing and capital requirements to

minimize outward-bound cash flow."

Robinson expects copper prices in the

$1.60 to $1.70 range for at least the first half of

the year. Operating costs at the Robinson mine

are in the $1.40 per-pound range, he says.

So far, Kennedy says, Robinson has not laid

off any of its more than 450 employees, but it

has terminated contracts with three of four

exploration rigs at the mine site.

"We are bumping along the bottom and I

think we will be here for a number of months,

but sometime in middle of February we will

see copper prices get up off the bottom and

improve."

As a result of tumbling copper prices,

Quadra, which primarily operates copper

mines, has seen its shares battered on the

Toronto Stock Exchange.With the decline in

demand and rapidly falling per-pound price

for copper, Quadra's share price plummeted

from a 52-week high of $27 to just $2.25 in

early December.

The story is equally bleak for the state's

molybdenum miners,who also enjoyed

record-high prices and then saw reduced

demand cripple the market.

Sparks-based Golden Phoenix Minerals,

operator of the Ashdown Mine in Humboldt

County, ceased production and laid off 76

miners, while Denver-based General Moly,

operator of the Mt.Hope project near Eureka,

said in November it may delay delivery of noncritical

mining equipment and construction

projects to conserve cash.

John Dobra, associate professor of economics

at the University of Nevada, Reno, says

Mt.Hope has a big enough deposit of molybdenum

that General Moly still can move forward

at current market prices.

And the sharp drop in fuel prices may

lower mine operating costs, Dobra adds.

"There may be some good news on the

cost side for first time in five or six years," says

the economist.

The future of Nevada's gold miners is

equally unclear, although the price of gold has

held up despite a global recession.

Gold has retreated more than 25 percent

from a March high of $1,000 an ounce to the

$700 range. Despite the decline, Omar Jabara,

senior director of communications for

Newmont Mining, the state's second-largest

gold producer behind Barrick Gold, says

Newmont remains bullish on production in

2009.

"For the long term,we see a strengthening

in gold price mainly because all the fundamentals

remain intact supporting demand for

physical gold," Jabara says."People see gold as

a hedge against inflation.We expect gold

prices to remain firm we don't see the bottom

coming out of gold."

Jabara says Nevada continues to be the

cornerstone of Newmont's production and is

likely to continue in that role.Newmont has

eight surface and underground mines in the

state, the largest being the Gold Quarry roughly

60 miles south of Elko. Its newest mines are

the Phoenix Mine near Battle Mountain and

the Leeville Mine in Eureka County.

And a couple of gold mines will begin production

this year.

Allied Nevada Gold of Reno expects to

bring the Hycroft Mine west ofWinnemucca

back into full production this year. The mine,

which has been closed since 1998, is projected

to produce 100,000 ounces of gold a year.

Pacific Gold Corp. of Reno says its subsidiary,

Nevada Rae Gold, anticipates gold production

in the first quarter at its Black Rock

Canyon Mine in Crescent Valley in Lander

County. The operation is expected to produce

approximately 6,500 ounces of gold in its first

full year of production.