ICYMI, gold started the year priced at about $1,700 an ounce, and finished 2013 at $1,200, marking an end to a dozen years of a splashy but unsustainable rally. Hundreds of jobs were eliminated at Nevada mines.
Toronto-based Newmont is the second-biggest gold mining company in Nevada. Of the 500 largest firms traded on the New York Stock Exchange, no corporation’s stock dropped more in 2013 than Newmont’s, which toppled 50.6 percent. The largest gold producer in Nevada and the world, Barrick, wasn’t far behind (ahead?). Barrick stock plunged 48.8 percent over the course of the year.
Goldman Sachs analysts expect the price of gold to drop another couple hundred dollars this year. Other analysts project prices to stabilize or, at best, go up a smidgen or two.
The state budget is going to take a hit, and not just because a lower gold price means less revenue. When the price falls, mining expenses don’t, and those expenses, liberally bestowed in Nevada, are deductible. For instance: Carlin Trend, Newmont’s largest mine and the third largest in the state, deducted 63 percent from the value of gold produced at the mine in 2012 (the most recent available data), a year when gold averaged $1,668 an ounce. If gold hovers at $1,200 – or lower – throughout 2014, it is conceivable that Carlin Trend will produce more than a billion dollars worth of gold yet pay not a single dime in state mining taxes.
How can a mine even stay in business if its expenses are so high that the mine claims no net revenue? The answer probably has something to do with the fact that (as I’ve reported before) expenses reported to the Nevada Tax Department are far higher than expenses reported to shareholders and the Securities & Exchange Commission. Like so much of Nevada’s mining tax and regulatory regime, the state’s deduction policy is recklessly irresponsible.
An amendment on the November ballot would remove language from the Nevada Constitution, language that enshrines the sordid farce masquerading as a state mineral tax. Polls show the amendment is wildly popular with voters, and mining industry officials are reportedly telling people they won’t even campaign against it.
A skeptic might say that mining is merely hoping to lull its opposition into complacency, so that when the industry launches a multi-million dollar campaign against the amendment in the final weeks before the election, amendment supporters will be caught without time, money or infrastructure needed to launch a campaign of their own.
Then again, Big Mining may at long last accept the fact that the industry’s constitutional protections are politically, economically and morally indefensible. The corporations may sit quietly while the amendment passes, and put their faith in an institution that has coddled the industry just as dependably as the state Constitution: Nevada’s Legislature. The amendment, after all, merely allows legislators to raise taxes on mining if they choose. A mining tax increase would need a two-thirds vote from both the Assembly and the Senate, first to pass, and then to override an all but certain veto from mining apologist Brian Sandoval. Pat Hickey, a Republican Assembly leader, has already predicted that even if voters approve the amendment, once the Legislature gets done with them, miners won’t pay much more in taxes than they pay now.
Whatever mining’s strategy, rest assured that the big talking point mining will hammer again and again, whether in a campaign or with legislators, will sound something like this: “Heavens to Betsy the price of gold has collapsed so now, clearly, is no time to raise the mining tax. Why, if Nevada raises taxes on mining, companies will hold back on development and even be forced to eliminate more jobs.”
As it happens, gold’s spectacular rise and predictable fall may be the strongest argument of all for raising the mining tax.
From the start of the century until it peaked in 2011, the price of gold rose by more than 530 percent. The price has plummeted by well more than a third since that 2011 record, plunging 28 percent in 2013 alone.
Nevada taxes gold at 5 percent of net value, net being the amount left after mining is allowed those lavish deductions (see the Carlin Trend example above).
Compared to such massive swings in the price of gold, the likelihood of Nevada’s Lilliputian tax rate influencing mining’s decisions about production, project development and hiring and firing is negligible at most and, more likely, nonexistent.
Nevada could tax gold at two or three – or four or five – times the current rate, and that tax burden would still be too small to wield a meaningful impact on Newmont’s or Barrick’s plans in Nevada. Those plans hinge first and foremost – like really, really foremost – on the price of gold. They always have.
Which brings us to probably the biggest blown opportunity in the state’s history. Nevada’s failure to tax mining responsibly when gold was soaring cost the state hundreds of millions if not billions of dollars in tax revenue, money that would have stayed in the state funding schools and circulating through the economy. Instead, mining’s windfall profit flew out of state, where much of it was cold pissed away on bird-brained schemes hatched by Barrick’s and Newmont’s incompetent leaders (many of whom of have been or are in the process of being replaced; a tumbling gold price isn’t the only reason Nevada miners have been losing their jobs).
Barrick and Newmont, and their shareholders, were the big losers on the stock market last year. But when it comes to mining, the biggest losers – the biggest chumps – have been the people of Nevada, pretty much since statehood. Come November, voters will take a big swing toward fixing that. Yes, now is no time to raise the mining tax. But better late than never.
HUGH JACKSON’S column runs every other week.