Mining profits stand out as D.C. hunts for revenue

By Karoun Demirjian

Sunday, Feb. 27, 2011 | 2 a.m.

Dominating Capitol Hill’s agenda last week was the Middle East, where a series of popular uprisings are shattering the geopolitical status quo and sending diplomats into overdrive trying to predict what the shake-ups will mean for the United States, diplomatically, strategically and economically.

The wave of protests that last week reached Libya threaten to upend the production of an Organization of Petroleum Exporting Countries member. Oil prices have topped $100 per barrel and consumers are paying for it.

But when the price of black gold rises, the price of regular gold rises, too. And that presents a bit of a silver — and golden — lining for mining companies that operate in Nevada.

Gold rose to more than $1,415 an ounce last week, within a percentage point of December’s record of $1,431.50. Silver was shining, too, trading as high as $34 an ounce last week, the highest in a decade.

That means profits for Nevada’s mines in the midst of global crisis.

The prices of gold and silver aren’t directly tied to the price of oil. But when the world appears to be falling apart, investors flock to chaos currencies — silver and gold.

Nevada is home to more than 80 percent of the country’s gold mines, which in 2008 sold nearly $5.5 billion worth of minerals — at a time when gold prices hovered around $850 an ounce.

Profits have been growing with the steadily increasing price. For example, in 2010, Newmont Gold, whose international holdings include several Nevada mines, posted a net income of $2.28 billion — up almost a billion dollars from $1.3 billion a year before.

But with profits like those, it’s bound to be more difficult for the hard-rock mining industry to keep fending off the federal government.

When it comes time to hash out spending for fiscal 2012, President Barack Obama has got his eye on the mining industry.

Obama has suggested commanding the same taxes, fees and royalties from the hard-rock mining industry as for coal-mine operators. The fees proposed — including higher taxes on production and fees for converting abandoned mines — were approved by a Democratic House two years ago. But Senate Majority Leader Harry Reid always managed to keep the subject from coming up in the Senate.

This time, though, Reid appears ready to talk — a move that may be inspired by Obama having packaged the proposed hard-rock mining industry changes along with his call to repeal subsidies that have long been enjoyed by the oil and gas industry, which are cuts Reid has long sought.

Under rules approved in the state’s constitution in 1864, mining companies operating in Nevada pay taxes at a rate of 5 percent.

But in 2008, according to the advocacy group Nevadans for a Fair Mining Tax, a subdivision of the Progressive Leadership Alliance of Nevada, mining companies paid just $40 million on the $5.5 billion in gold sales in 2008 — or a tax rate of less than 1 percent.

That means little profit trickles down to taxpayers — whether for education, government services or stimulus money for industries with more job-creating opportunities — to help bring down Nevada’s worst-in-the-nation unemployment rate.