Wednesday, February 17, 2010
Nevada Miners New Taxation Worry
It is 6:01 AM. Grab a cup and let's start the day with the good news first. You'll notice that there are more green lights lit on the Eureka Outlook Dashboard (to your right) than the last several weeks. Commodity reflation appears to be intact, investor confidence is returning to the metals and miners and the enough fear has left the marketplace to drop us back into 2-WD. We'll close today on the reasons why.
Say Colonel what's with the orange light? Nuts, that's some of the scary news. There is new lead whizzing past the mineshaft this morning from the "tax-the-miners" crowd. There is enough noise coming from this hubbub to change our yellow warning to a darker shade on the Dashboard's "Adverse Regulation/Legislation" indicator light. As reported in MineWeb, the latest shots are coming right from the Governor's Office:
Pro-mining governor seeks to cap Nevada mining's total tax deductions (MineWeb, 2/17/2010)
"Nevada miners lost a crucial ally in their fight to avoid paying higher taxes as Nevada Gov. Jim Gibbons, a former geologist and mining attorney, announced Tuesday he will seek limits on the total amount of deductions miners can enjoy in the state."
Ouch. Let's set the stage on a related issue before we read on. The British Economist, which has reported on the economic health of nations since 1843, compactly summed up the sovereign debt problem in their latest issue, "Last year it was banks; this year it is countries." The Report has been following the debt plight of Dubai and Greece with Portugal, Spain and Ireland (and possibly Italy) waiting in the wings. The solvency concerns surrounding these countries cratered the metals and miners and has only recently begun to ease with the promise of some remedial fiscal actions. The troubling fact is many of our states face massive rising deficits with economies comparable to or exceeding the troubled European countries. California, arguably the sixth largest economy in the world, is a prime example inching closer to the ledge of default canyon. Nevada is joining the major leagues too with a whopping $880 million budget deficit.
So it is no wonder that Nevada politicians are desperately searching for who has the gold (in our case, literally). One idea is to cap the deductions afforded miners and some continue to challenge the miner's constitutionally mandated tax protections dating back to 1864. Check this out:
"Nevada Department of Taxation figures reveal Nevada mines reported gross proceeds of nearly $5.7 billion in 2008 with 43.99% of those earnings reported in Eureka County, Nevada. However, net proceeds after deductions were taken out reduced that amount to $1.85 billion." (MineWeb, 2/17/2010)
The temptation to close the deduction gap is apparently too compelling to ignore for Governor Gibbons. Miner taxation sentiment has expanded from fringe groups like the Progressive Leadership Alliance of Nevada, who advocate constitutional change, to cash-strapped politicians. These flames, of course, are only part of a larger sage brush fire at the national level:
"...the battle over Nevada's taxation of mining is only part of a larger war in which the federal government is now seeking to repeal the net proceeds tax on mining in favor of a gross profits tax, which has also garnered strong opposition from the nation's hardrock mining industry." (MineWeb, 2/17/2010)
With gold mining production already down by 10% in the United States from last year, the Governor's capitulation is a very unwelcome development
So Colonel, what was that good news? Yesterday's strength in copper, gold and oil prices has convinced me that commodity reflation is still intact even though the dollar index (.DXY) remains hovering around the 80 level. The miner's are looking stronger too with both Barrick (ABX) and General Moly (GMO) crossing positively over their benchmark 200-day moving averages with yesterday's rally. Here are their charts, the 200-day average is the solid line trending modestly higher in both cases.
Enough chart talk, let's walk the walk:
4-WD is OFF - the VIX or "fear index" is below 25, smoother markets are expected (what is this?)
An ORANGE light is ON for possible adverse regulation/legislation: Miner Taxation, Cortez Hills & mercury emissions
Otherwise, all lights are green on the Eureka Outlook Dashboard (upper right, what's this?)
Oil is up $0.15 in early trading to $77.16 (March contract, most active); Gold is down $1.4 to $1118.4 (April contract, most active); Silver is up $0.002 to $16.150 (March contract); Copper is up $0.0140 to $3.2355 (March contract); Molybdenum is steady at $16.00
The DOW is up 26.60 points to 10295.41; the S&P 500 is up 3.45 points to 1098.32. The miners are mixed:
Barrick (ABX) $37.86 up 1.21%
Newmont (NEM) $47.43 up 0.02%
US Gold UXG) $2.54 down 1.17%
General Moly (Eureka Moly, LLC) (GMO) $2.51 down 1.18%
Thompson Creek (TC) $13.19 up 1.70%
Freeport-McMoRan (FCX) $75.04 down 1.19% (a bellwether mining stock spanning gold, copper & molybdenum)
The Steels are mixed, (a "tell" for General Moly & Thompson Creek):
ArcelorMittal (MT) $38.98 down 0.54% - global steel producer
POSCO (PKX) $119.81 up 0.06% - South Korean integrated steel producer
The Eureka Miner's Grubstake Portfolio is is down 0.04% to $1,253,662.54 (what is this?).