Rough road ahead: Alaska's producing mines face lower commodity prices, higher expenses.

• Author: Liles, Patricia
• Position: MINING

Alaska's producing mines are facing increasing operational costs, mainly for energy, while at the same time, market prices of mined metals are dropping dramatically.

Operating costs for producing mines in Alaska have increased 20 percent a year, since 2005, according to Rich Hughes, development specialist in the State's Office of Economic Development/Minerals.

"That has created a dilemma for producers and developers ... three years at 20 percent annual increase in operating costs is 60 percent," he said. "It's a very financially troubling time for industry to keep up with."

PRICES SLUMP

While operating costs have been increasing, prices for the commodities produced have been declining rapidly. In 2008, zinc, a base metal that in recent years has contributed the most value of mined metals in Alaska, severely dropped in price. Zinc market prices fell from nearly $1.30 per pound early in the year to less than 50 cents in October and November of 2008.

"Base metal prices will be down for an extended period of time. We're looking for a couple years of pretty poor times," Hughes said. "It depends on how much good this injection of capital into the (financial market) system does. Ordinarily, these things take some time to respond."

He's expecting Alaska's mineral industry value to decrease in 2008 from the record $4 billion reported in 2007, as a result of lower market prices for zinc and other base metals mined in Alaska.

"We're going to be down at least a half a billion dollars for 2008, possibly more," he said, in early November.

[ILLUSTRATION OMITTED]

That's even with a new gold producer in Alaska--the Rock Creek mine near Nome, operated by NovaGold Resources. The mine began gold production in mid-September, with expected annual gold production of about 100,000 ounces. Life-of-mine cash costs are expected to be about $500 per ounce, the company reported in its third-quarter 2008 report.

WILD RIDE OVER THE LAST FOUR YEARS

Total values for Alaska's mining industry have increased substantially during the last four years, jumping from $1.06 billion in 2003 to last year's $4.01 billion. Producing mines contribute the lion's share of that industry value, with more than $3.3 billion worth of minerals mined in Alaska during 2007.

That production value "eclipsed all previous years on record," reported the State on Nov. 4. "Production volumes were up for all commodities except coal and rock. Continued strong metal prices also contributed to record production values for Alaska's minerals."

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