Screaming Eagle roller coaster ride for gold in 2008: funding for juniors constrained, producers need price increases to offset production costs.

• Author: Liles, Patricia
• Position: MINING

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Known as "gold bugs," fans of the precious metal experienced a massive Screaming Eagle roller coaster ride during the last 12 months, as market prices soared in March, setting a new record high above $1,000 an ounce, before plummeting back to earth and the mid-$700 per ounce range during the summer and fall.

And the ride became even more choppy, bone-jarring and mind-boggling as the U.S. economic crisis spread throughout the globe this fall. Talks of a financial meltdown sparked short rallies in gold market prices, followed by dramatic drops. One-day price changes ranged up to nearly $100 an ounce.

But what do all these price gyrations in the gold market mean to Alaska's mining industry? "It's a negative--it creates a tremendous amount of anxiety, uncertainly and fear in the investor," said Jeff Pontius, president and CEO of International Tower Hill Mines, a junior exploration company with gold and base-metal properties in Alaska.

Exploration companies like his that rely heavily on the venture capital markets for funding, have been suffering from the general withdrawal of investment dollars in the midst of the financial market meltdown.

"People aren't putting money into the juniors and investing in their stock because of the apparent uncertainty of the gold price," said Rich Hughes, development specialist in the State's Office of Economic Development/Minerals.

Additionally, gold projects in the development stage are dramatically impacted by both the fluctuating market prices for gold, as well as spiraling increases in construction costs, he said. "Funding for development projects is dependant on the availability of financial institution money," he said. "Financial institution investing has virtually dried up ... because of the almost violent increase in capital costs for projects of 44 percent per year since 2005.

"That jeopardizes the economics of projects and when you throw in the uncertainty of gold prices, it has almost dried up capital available for mine development," Hughes added.

Yet the amount of gold being produced annually is declining, as old mines shut down and new ones lag behind in coming online. "There is a strong fundamental aspect to the gold market of strong demand and decreasing supply, so the price is going to have to go up," said Pontius, who previously worked for global gold mining giant, AngloGold Ashanti, before forming International Tower in 2006.

Whether projects are in exploration, development or production, Alaska's gold mining industry has definitely felt the impact of the rapidly changing global gold market prices in recent months. Opinions about future gold prices range across the spectrum.

"I have not talked to anyone who does not think gold will go higher," said Curt Freeman, a Fairbanks-based consulting geologist...