Mining industry struggles: fewer investors, greater operating costs slow recovery.

• Author: Borell, Steve
• Position: MINING

The mining industry continues on the path of steady recovery following the financial meltdown of late 2008 and early 2009. The producing mines continue to struggle with increased operating costs while exploration projects continue to struggle to attach additional investment capital.

Kensington is fight now the big news. After more than 25 years of exploration, evaluation, three environmental impact statements, expenditure of more than $200 million, and legal challenges in the U.S. District, 9th Circuit and U.S. Supreme courts, Kensington is back on track to become the sixth largest operating mine in Alaska. Work is now under way to complete the tailings storage facility and the final details to bring the mine into production, thereby creating more that 250 new direct mining jobs for Southeast Alaska.

The financial meltdown and continued increases in operating costs mean added belt tightening for the large mines. It is too early to know what impacts the meltdown will have on the small family gold mines. Early in the year the large mines each made adjustments to ensure they would not have to lay off employees. The segment of the industry being impacted the hardest is the junior exploration sector. These companies depend on investment funding through their stock listings and at this point buyers for high-risk, junior-exploration-company stocks are slow to return to the market.

International prices of base metals (copper, zinc, lead, iron) continue weak, but are improving. Greens Creek and Red Dog are the Alaska mines that depend on base metal prices.

Precious metal prices affect a much larger part of the industry. After dropping to nearly $700/ounce in November 2008, gold prices recovered rapidly and have continued above $900/ounce since mid-April. Silver prices dropped below $10/ounce...