Alaska mining industry outlook--2016: still an attractive investment in bull market.

• Author: Freeman, Curtis J.
• Position: SPECIAL SECTION: Mining

Some years back I heard Alaska Mining Hall of Famer Ernie Wolf say that a pessimist was an optimist with experience. Unfortunately, "experienced optimists" are in over-supply in the mining industry right now, both worldwide and here in Alaska, as the global mining industry enters its fifth consecutive year of depressed commodities prices, lackluster corporate financial performances, and a disinterested investment climate. Experienced optimists from all over the world suggest 2016 will be much like the last few years, with SNL Metals & Mining's Mark Fellows going a step further, suggesting the current bear market for metals has another two years to run its course.

Fellows compared the 1997-2004 mining sector crash to our current crash, which started down in earnest in 2012. He found that for the current crash, annual total sustaining and expansion capital expenditure declined by 30 percent by the end of 2015.

Perhaps more bothersome, metal prices have fallen 12 percent more than they did during the 1997-2004 cycle, and, with few exceptions, that down trend does not look like it has any intention of stopping in the near term. Even counting gold's admirable $150 rise so far in 2016, all of the metals that contribute toward Alaska's more than $3 billion gross metal value, including zinc, lead, gold, and silver, are languishing at or near multi-year lows.

An Imminent Correction

Until 2015, the gloomy picture painted in the previous paragraph appeared to be at odds with mine production figures from around the world which indicated that total metal mine production levels remained at or near all-time highs. This apparent dichotomy was just that: total mine production had slowly ramped up as part of a decade-long mine expansion period.

This increased capacity was designed to supply a long-term China-centric metals bull market sometimes referred to as the "Super Cycle." When the super cycle turned out to be anything but "super," mining operations found themselves producing at dramatically expanded levels but selling at progressively lower commodities prices.

A correction was imminent, and by early 2015 the mining industry had started to respond with mine shut-downs or reductions, either voluntary or forced by market conditions, in order to adjust to both falling commodities prices and sinking demand.

Alaska's Mineral Industry

What does all this mean for Alaska's mineral industry over the next year? For starters it means that in the short term we...