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Hugh Jackson: Nevada funds mining’s big mistakes

<p>Hugh Jackson</p>

Hugh Jackson

The biggest gold producers in Nevada (and on Earth, for that matter) have been blowing billions of dollars on sketchy projects around the world.

Fortunately for the companies, the one place in the world where they make the most money (that’d be us) taxes them very lightly, so they’ve had billions to blow.

Barrick Gold Corp. reported a $3 billion fourth-quarter 2012 loss, attributed mostly to the company dropping far more money into a copper mine in Zambia than the mine is worth. That’s part of a pattern for Barrick. Over the last couple years the company has reportedly had to eat more than $9 billion in write-downs, cost overruns and other charges because it spent too much on projects in Africa, South America and elsewhere that weren’t as valuable as Barrick thought they would be.

Hoping to calm shareholders, Barrick last week assured them that the company is unloading some of its far-flung holdings and will refocus its operations in … Nevada.

“I think sometimes people lose sight of the fact that we have these huge core assets in Nevada,” Barrick CEO Jamie Sokalsky said in a conference call covered by Bloomberg News. “That’s a real competitive advantage for us.”

About 40 percent of Barrick’s revenue was produced in Nevada in 2012. As has been the case for several years, Barrick’s Nevada production isn’t just bigger than in any other country, it’s bigger than on any other continent. That isn’t going to change any time soon. As the company said in its financial report to shareholders, Nevada “is the cornerstone of our success.”

In 2011, the most recent year for which the data is available to Nevada lawmakers (assuming any of them ever wanted to examine it), Barrick produced roughly $4.4 billion worth of gold. The state mining tax, enshrined in the Nevada Constitution, caps the tax rate on that production at 5 percent. Five percent of $4.4 billion is $220 million. Royghly half of mining tax revenue stays in the county where the gold was produced, and half goes to the state general fund. So of that $220 million, maybe only $120 million would be used to ease overcrowding in Nevada schools or help mend Nevada’s tattered mental health system.

Alas, Barrick didn’t pay anywhere near $120 million to the state general fund. Nevada’s mining industry is allowed unique and really quite large tax deductions, so the 5 percent mining tax was only applied to a little more than half of the actual value of gold that Barrick produced. Instead of $120 million, Barrick paid about $60 million to the state’s general fund. On $4.4 billion worth of gold. That’s an effective tax rate of about 1.4 percent.

At least Barrick paid a higher effective rate than Newmont, Nevada’s other big gold mining company (gold accounts for more than 90 percent of the value of all Nevada mineral production; Barrick and Newmont account for nearly 90 percent of that). Newmont paid $30 million to the state general fund, just a tad more than 1 percent of the $2.9 billion worth of gold Newmont mined in Nevada.

Like Barrick, Newmont produces more gold in Nevada than anywhere else in the world. And like Barrick, Newmont has been throwing billions down ratholes: It turns out trying to develop a mine in the icy Canadian arctic is more expensive than Newmont thought, and Newmont has all but walked away from a $5 billion project in Peru amid widespread and sometimes violent Peruvian opposition.

But hey, Newmont and Barrick might be veritable models of managerial competence compared to Veris Gold, a British Columbia outfit that operates the underground Jerritt Canyon mine north of Elko. Since the mine is the only property Veris owns that produces anything, it’s curious the company is still in business. In five of the last six years, the operators claimed the cost of producing gold was as high if not higher than the value of the gold itself. As a result, over the last several years the mining tax bill at Jerritt Canyon has been effectively zeroed out. (Btw, Barrick and Newmont have also reported zero taxable value — and paid zero mining taxes — on hundreds of millions of dollars worth of production on numerous occasions over the last decade).

Nevada mining lobbyists, who currently outnumber Nevada state senators, are fond of quoting an industry-funded study that shows if you add up all the taxes mining pays — not just the mining tax but sales, employment, property, fees, etc. — mining pays more taxes per employee than any other industry in the state.

In other words, mining contributes even less to Nevada’s workforce than it does to Nevada’s tax base.

Meantime, between the financial blunders at Newmont, and Barrick and Veris’s perennial knack for mining gold that isn’t worth anything even as gold prices were at all-time highs, the mining industry can claim indisputably that it has been pissing away more money per employee than any other industry in Nevada.

If reckless and/or incompetent executives at Barrick, Newmont, Veris or any mining company want to just blow money, that’s their shareholders’ problem. (At least Nevadans can’t be blamed for negligence on the part of the corporations’ boards of directors; no Nevadans are on them).

But the state of Nevada should not enable corporate recklessness and incompetence with a tax system that allows the companies gratuitous profits from the one place that means more to the companies than anywhere else in the world — not while Nevada schools and social services are underfunded, understaffed and overburdened. Nevada needs to stop bankrolling mining’s mistakes.

If Nevada lawmakers pass Senate Joint Resolution 15 this year, voters will be able to take mining’s sweetheart tax deal out of the state constitution next year. Only then can Nevada can craft a system to tax its precious nonrenewable resources responsibly in a manner befitting the 21st century instead of the 19th.

HUGH JACKSON blogs at and co-hosts The Agenda on KSNV Channel 3.