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State mining profits surge

With high demand and high prices, industry observers expect boom to continue

Posted: Monday, June 18, 2007

Old-timers may tell you Alaska's mining heyday is long gone. Tax collectors are telling a different story.

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State mine taxes, based on profits, have skyrocketed in recent years.

State Department of Revenue officials are expecting to receive $58.7 million in mining tax in fiscal 2007, which ends June 30. That number is more than triple last year's mining tax receipts of $18.6 million, which was itself a record.

The big profits for the state are a combination of high demand and high prices for both base metals and precious metals, said Steve Borell of the Alaska Miners Association.

In the past, Borell said, base and precious metals prices often moved independently on markets, with one priced low while the other was high.

These are boom times for both. Mining companies are reaping big profits and expect to continue to do so, Borell said.

"I believe the companies are cautiously optimistic that prices are going to remain high," he said.

Two big Alaska mines, Greens Creek on Admiralty Island near Juneau and the Red Dog mine near Kotzebue, are driving most of the profits, state officials and industry observers say.

The state is not allowed to release specific tax information from companies, but many officials are familiar with publicly available industry information.

"Those two mines are the main reason for the increase," said Kerwin Krause, a geologist with the Department of Natural Resources Division of Mining, Land and Water.

The state taxes mine profits, not revenue, and the industry has until recently seen few profitable years. Low prices even forced Greens Creek to close several years ago.

"Up until the last few years the mining license tax has not generated much revenue for the state," said Johanna Bales, acting deputy director of the Tax Division of the Department of Revenue.

State economists agree with Borell and predict next year will be about as good as this year.

Krause said high metals prices are prompting more exploration for minerals, prompting claims that signal more mining activity in the future.

"We've got a staking boom going on right now," he said.

The boom, say observers, is the result of growing demand in the worldwide economy, especially in China and India.

The state's most profitable mining commodity is zinc, mostly produced at the huge Red Dog mine. State tax analysts say prices for that high-demand industrial metal went up 133 percent last year.

Base metals such as zinc and copper are in tremendous demand, said Borell.

"Car bodies are the biggest user of zinc," he said. "The reason cars don't rust out like they did 10 years ago is they're putting more zinc in car bodies."

Bales said revenue analysts who study world markets credit development in China with strong mining tax revenues in Alaska.

"There's been a huge demand from China specifically," she said. "Most of our exports are to China, and that has caused this increase in minerals prices."

Borell said indications are that Asian demand will remain strong.

"The pent-up desire for a better life within China and India is absolutely huge," he said.

At the same time, prices for gold, silver and other precious metals are also going up, benefiting Greens Creek. Average gold prices went up 36 percent during the year, state tax analysts said.

At the same time, Borell said, populous India and China have a tradition of ownership of precious metals as a form of insurance against hard times. That's likely to keep demand for Greens Creek's production high as well.

While most of the state's mining taxes so far have come from just two mines, Alaska currently has six major mines in operation, some of which are expected to be big contributors in the future.

Borell credited Greens Creek and Red Dog, both developed at a time when there were no major mines operating in Alaska, for laying the groundwork for the rest of the industry.

"Those two operations proved to the world and the mining industry that it was possible to get a permit to mine in Alaska," Borell said.

• Contact Pat Forgey at 523-2250 or patrick.forgey@juneauempire.com.



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