Plunging Gold Prices Test Nevada Industry’s Mettle

Plunging gold prices are no death knell for Nevada’s mining industry, but are a cause for concern despite the producers’ historic ability to squeeze every karat out of a ton of ore.

“The real backbone of Nevada’s industry is pretty solid. It’s still very competitive at current prices,” University of Nevada at Reno economist John Dobra said.

Since reaching $414 a troy ounce in February 1996, prices have slipped below the psychological benchmark of $300 at Handy & Harman in New York, close to the $284 of 12 years ago. The closing price Tuesday was $299.35, up 45 cents from the day before.

“Things are pretty dismal right now. It seems all the news is bad,” Dobra said. “Basically, there aren’t any positive signs for gold in the market.”

He said prices for the metal have been weak for months because of threats by Swiss banks to sell off their holdings. Things really went sour when the Asian banks got into trouble.

“Asians always kept prices up and now, they’re really unable to buy gold,” he said.

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While he and Russ Fields, administrator of the Nevada Division of Minerals, agree that the state’s mines are enduring, they say some signs of hope would be nice about now.

“We would definitely like to see it stop going down and start going up pretty soon,” Fields said. “I think it’s obvious that we have a problem. We would like to see this thing turn around and bounce back up.”

Dobra said the state’s edge is the cost-cutting tricks that mine operators have learned in nearly a century and a half of pouring gold at cut-rate prices.

“The average in Nevada is $240 an ounce, making it one of the lowest-cost producers in the world,” he said. “Currently, the average costs in South Africa and Australia are higher than the current spot price.”

Last year’s 7 million ounces of gold extracted from Nevada’s soils accounted for two-thirds of the U.S. production and ranked the state’s output third behind those two countries.

“If it turns into a long, bloody ordeal, the consolation is we’ll be the last one standing,” Dobra said.

On the down side, gold averaged $387 an ounce last year--nearly $100 more than this week’s price.

“It’s not time to panic yet,” Fields said. “We’ve had a really good run for a number of years in gold. Most mining companies understand that this is a part of the mining business.

“There are things that companies pressured by this low price can do immediately to cut costs--shelving expansion plans, curtailing many of the discretionary plans that they can.”

Newmont Gold Co. and its parent Newmont Mining Corp. bit the bullet last month by cutting the companies’ 12-cent quarterly dividend to 3 cents.

Newmont is the world’s No. 2 gold producer and one of the most frugal, with costs averaging $188 an ounce.

The dividend reduction will let the company continue expansion on the Carlin Trend in Eureka and Elko counties and accelerated exploration on the former Santa Fe gold properties in Humboldt County, according to Ronald C. Cambre, Newmont’s chairman, president and chief executive officer.

Cambre said he expects the company’s earnings picture to remain bright.

Barrick Gold Corp., the other major producer of Nevada’s 30 or so significant operations, also expects to remain profitable by pouring gold at a cost of about $190 an ounce, according to Vincent Borg, vice president of corporate communications for the Toronto-based company.

Fields said some Nevada companies with higher production costs may be feeling a greater pinch, but haven’t said so if they are.

“Mines have no opportunity to adjust the price they receive for their commodity, so the only side they can work on it the actual cost of operation,” he said. “I’m sure we’re going to see a lot of reworking of mining plans.”