Spokane Journal of Business

Metal prices, demand said to be holding strong

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Mining companies expect another year of high metal prices and production in 2013 to meet global demand for gold and silver, as well as for base metals. Industry leaders say challenges ahead include a growing shortage of experienced mine workers and increased production costs.

"I don't think people see a retreat in metal prices at all," says Laura Skaer, executive director of Northwest Mining Association, which held its annual meeting in Spokane Dec. 3-7.

Skaer says if recession occurs in any country globally, "It will slow the demand for base metals, but it would likely increase the demand for gold and silver, both as currency and as wealth preservation."

Mitchell Krebs, CEO of Coeur d'Alene Mines Corp., agrees that global economic factors are key. "I think it's the 12th year in a row for higher metal prices, and most of that is really driven by continued strength in investment demand."

He says fiscal issues in the U.S. and in Europe, and a weaker U.S. dollar, have helped push precious metal prices up this year, and adds, "We see those same themes continuing next year." Another factor influencing silver demand is an emerging new middle class overseas, such as in China and India, that now can afford products containing silver, including cell phones, Krebs says.

Meanwhile, Coeur d'Alene-based Hecla Mining Co. is scheduled to resume production at its Lucky Friday mine, in Mullan, Idaho, in early 2013 and expects full production of 2 million ounces of silver from the mine next year. The federal Mine Safety and Health Administration had ordered the mine closed last January for safety improvements after a couple of accidents that killed two miners.

Hecla also operates the Greens Creek mine in Alaska that's expected to produce about 6 million ounces of silver this year. Hecla recently reported a third-quarter net loss applicable to common shareholders of $1 million, compared with net income of $55.8 million in the year-earlier period.

Coeur d'Alene Mines says it expects to finish 2012 with total production of almost 19 million ounces of silver and 225,000 ounces of gold from three mines: the San Bartolome silver mine in Bolivia, the Palmarejo silver-gold mine in Mexico, and the Kensington gold mine in Alaska.

The company posted a third-quarter net loss of $15.8 million, down from net income of $31.1 million during the year-earlier period, which it attributed to higher costs at Palmarejo where it said it faced unfavorable underground conditions.

Overall, the industry is facing stronger regulatory and environmental challenges here and abroad, leaders say. Also, production costs are rising as many operations get farther into their mine life.

"For most producers, the cost of production probably has increased 15 to 20 percent across the board, year over year," says John Shanahan, CEO of Spokane-based Revett Minerals Inc. That includes greater complexity to extract metals in lower-grade ore deposits, he says, "going deeper into the ground, and going often into more difficult and remote mining areas."

Also within the industry, more investors in mining companies are seeking a greater return of record profits to shareholders, Krebs says, a theme he expects will grow next year.

"Investors are becoming more and more interested in having those profits returned to them by way of dividends," Krebs says. "That's something new to the industry and causing the industry to rethink how we run our business, how we deploy cash flow, and how we create returns for shareholders."

Mining companies also will compete for a smaller pool of trained workers, as many employees retire.

"All companies are struggling with that; I can't see that changing any time soon," Krebs says.

—Treva Lind

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