A low-risk investment?

• Author: Freeman, Curtis J.
• Position: Alaskan mining industry - Industry Overview

As Wall Street Bulls continue to defy the Bears by remaking the world of stocks, bonds and mutual funds, the mining industry continues to remake its world without all of the fanfare and hoopla of the paper markets. In the past year, the mining industry has weathered the blows of the largest mining hoax in history (the Bre-X Minerals debacle), the decline of gold prices to their lowest point in 18 years ($280/ounce), and a significant decline in the previously buoyant price of most other metals. This one-two punch of depressed metal prices and the loss of investor confidence in mining stocks has put most of the world's mining industry on the canvas for the count. Alaska, normally the first region to feel the pinch when times get tough, and the last to be affected by market upturns, has not been to nearly the same degree as most of the rest of the world.

The reasons for this corporate and investor confidence in Alaska are simple when viewed with the global perspective with which most mining companies now weigh the merits of a property or a region. Over the last 10 years, mining companies large and small have spread out over the globe in search of El Dorado. In the process of conducting exploration, development and production in places as diverse as Myanmar, Burkina Faso and Venezuela, mining companies and their investors have learned that many of the aspects of North American mining that they considered onerous were, in fact, much preferable to the systems under which they labor in some countries. These feelings of unease are hard to quantify except by reducing them to the most basic common denominators in the mining industry: the cost to find an ounce or a pound of metal, and the cost to produce an ounce or pound of metal.

As one might expect, details of these two cost items are closely guarded secrets, particularly the exploration finding cost. Because of the difficulty in quantifying the cost of finding an ounce or a pound of metal, this figure is seldom seen except when one entity purchases reserves in the ground from another. A more subjective method of gauging the favorability of exploration and production cost is via a risk analysis "report card," a list of the factors most important to a mineral company from an exploration and production investment standpoint. The risk report card I have reproduced below is my own attempt at a qualitative review of where Alaska stands in the global scheme of things.

Category Risk Low Moderate High...