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Vol. 11, No. 9 Week of February 26, 2006
Providing coverage of Alaska and Northwest Canada's mineral industry

MINING NEWS: Miners sell industry to Alaska legislators

With state’s 4th metal mine, Pogo, starting production, more in works, no one wants changes in investment climate or tax regime

By Sarah Hurst

For Mining News

A report on the economic impact of Alaska’s mining industry published in February provides a comprehensive look at the varied benefits mining brings to the state. The Alaska Miners Association commissioned the McDowell Group to prepare the report and distributed it to state legislators. Presentations to the Legislature by the AMA and the Alaska Minerals Commission in the same week emphasized the positive aspects of Alaska’s mining resurgence and the importance of a stable tax regime.

Much of the information in the McDowell report has been published before in various formats — for example, the McDowell Group’s previous studies on the economic impacts of Greens Creek mine and Fort Knox mine — but by bringing it all together the AMA hopes that Alaska legislators and other interested parties will have a clear guide to the economic facts about mining. The report covers exploration spending, production, employment, taxation, infrastructure development, education and charitable contributions.

“We are right now at a unique time in history in minerals worldwide,” the AMA’s executive director, Steve Borell, told the legislature’s joint Resources committees. “And that unique time in history is a time when precious metal prices, gold, silver, platinum, base metal prices, lead, zinc, copper, nickel, iron — and coal — are all at good levels, at high levels of prices, the highest in recent history. ... The result is that in 2005 approximately $95 million of exploration money was expended in Alaska.”

McDowell Group: 2,900 direct jobs

After describing Alaska’s major mines and development projects, Borell introduced Jim Calvin from the McDowell Group, who pointed out the report’s main findings. All of the data refers to 2004. The study identified 2,900 jobs that are directly attributable to the mining industry, accounting for $194 million in payroll. “The mining industry really does generate good jobs for Alaskan residents,” Calvin told legislators. The average annual salary at Alaska’s metal mines, according to the report, is $70,750.

“Over 80 percent of the people that are employed in Alaska’s mining industry are Alaskan residents. That’s more than the oil and gas industry, that’s more than the seafood industry, that’s more than the tourism industry,” Calvin said. Many of the mining jobs occur in rural Alaska where there are very few private sector opportunities, he added. Alaska’s mines are usually the largest or second-largest employers in their borough.

Mining makes a significant contribution to Alaska’s infrastructure. Transportation of coal and gravel on the Alaska Railroad accounts for 15 percent of the railroad’s total operating revenue, Calvin said. As Fort Knox mine is such a large consumer of electric power, other Fairbanks customers enjoy lower rates than they would otherwise, he continued. The mine lowers rates by about 7 percent for residential customers and 10 percent for commercial customers in the area. Also, in 2005 Alaska Electric Light and Power Co. extended a transmission line from Juneau to Greens Creek Mine on Admiralty Island. That extension may make it possible to transmit power to the small community of Hoonah, which currently relies on costly diesel power.

“The mining industry provides a nearly ideal package of economic benefits. ... It’s an industry that the state of Alaska can nurture,” Calvin said. “Certainly minerals are where you find them, but it’s also important to know that the industry looks for stable environments to invest its exploration and development money.” The McDowell report is available for download on the AMA website.

Tax structure established in ‘80s

Karl Hanneman, Teck-Pogo’s Alaska regional manager and a member of the Alaska Minerals Commission, outlined the tax structure for the mining industry at presentations to the House Finance Committee and the joint resources committees. Major operations are subject to a 7 percent mining license tax, regardless of the land status of their location, he said. A lengthy debate over mining rents and royalties ended in 1987 when the Alaska Supreme Court ruled that either rents or royalties were required under the constitution. The legislature decided to impose both: rents per acre and royalties set at 3 percent of net profits for mines located on state land.

“This debate and the resolution about this issue ... occurred prior to the industry expansion,” Hanneman told the Finance Committee. Usibelli coal mine was Alaska’s only operating mine in 1987. “And that’s really as I think tax policy should be, establishment in advance of development so that the industry can grow and prosper under stable conditions,” Hanneman added. Mines are also subject to property taxes, if they are located in a borough. Pogo mine itself signed an agreement late last year with the city of Delta Junction for a payment in lieu of taxes until a borough is formed. Pogo paid the city $500,000 in 2005 and will pay another $500,000 this year.

“Certainly the mining industry is willing to pay its share of the tax burden based on a broad-based, equitable type of a tax arrangement, but not an industry-specific tax,” Hanneman said. “Industry-specific taxes we feel would be a disincentive to investment, a disincentive to development in the rural areas, just the type of development that we’re trying to encourage.” Uncertainty about future taxation in areas where no borough has yet been incorporated is a concern for the industry, Hanneman added.

Legislators should also bear in mind that mining companies pay corporate income tax, another member of the Minerals Commission, Rich Heig from Greens Creek, told the Finance Committee. “On average the mining industry has a rate of return of about 5 percent. It’s not a high rate of return,” Heig said. “The industry is very capital-intensive, it takes many years to bring a project on from the initiation of exploration to being able to produce a metal, so from the standpoint of tax levels I guess the Minerals Commission believes that the tax regime that exists now is fair on the mining industry.”



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