SPECIAL REPORT: SJR 15 Update, Taxation Implications for Nevada Mining

*** SPECIAL UPDATE (Wednesday, 4/17/2013) ***

One of the biggest threats to gold price is central bank selling in the troubled southern eurozone countries (aka SIC PIGs). Cyprus is considering the sale of some of their reserves which total 13.9 tonnes. This could trigger more sales in these countries:

Portugal 382.5 t
Italy    2,451.8 t
Ireland       6.0 t
Greece  111.9 t
Spain     281.6 t

Total SIC PIG = 3,247.7 tonnes

To prevent a price collapse, these sales would occur over time (if at all) but nonetheless, the numbers are daunting.

I't's rough to be a gold miner today!

(11:58 AM, 4/16/2013) Analysts at RBC Capital think credit downgrades for some top gold miners are a strong possibility. There's a “moderate probability” Barrick Gold (ABX -0.1%) could trigger a one-notch downgrade at $1,400 gold; at $1,300, Newmont Mining (NEM +1.9%) could get downgraded, and Kinross Gold (KGC +1.8%) could get cut right to junk status. TD Securities also offers similarly disturbing conclusions.

0714 PDT, 4/17

(Note copper price on disappointing eco-news from Germany)

Comex gold $1,389.1 (Intraday low = $1,321.5 4/16)
Comex silver $23.575 (Intraday low = $22.000 4/16)
Comex copper $3.2130 (Intraday low = $3.1760, 4/17)
Nymex crude (WTI) $87.81

Barrick Gold (ABX) $18.90 up 0.27%
Newmont (NEM) $33.55 down 0.68%
General Moly $1.82 up 3.41%


*** SPECIAL UPDATE ***

Thankfully, gold got a bid this morning after plumbing $1,321.5 per ounce. Silver and copper are also off their Monday lows:

0716 PDT, 4/16

Comex gold $1,377.8 (Intraday low = $1,355.1 20:45 EDT, 4/15)
Comex silver $23.365 (Intraday low = $22.000 20:45, 4/15)
Comex copper $3.2725 (Intraday low = $3.1935, 4/15)
Nymex crude (WTI) $88.16

Barrick Gold (ABX) $19.81 up 0.15%
Newmont (NEM) $34.28 up 1.06%
General Moly $1.84 down 0.54%

*** SPECIAL REPORT ***

Last Friday afternoon, Eureka County Assessor Mike Mears sent this report a thoughtful analysis of SJR15 and the potential impact on mining taxation in Nevada. Unfortunately, yesterday's market calamities delayed its timely posting. Thanks and hats off to Mike!


SPECIAL REPORT – SJR15 which removes the net proceeds of minerals tax out of the Nevada Constitution passed out of the Senate last week on a 17-4 vote. It has been passed over to the Assembly where it will be heard in the next couple of weeks. The resolution passed out of the Legislature in the 2011 session, so if it passes out of this session, it goes to the ballot in 2014 for a vote of the people. All of my sources indicate that it will pass out of the Assembly and there appears to be enough public sentiment that mining does not pay its fair share that it would very likely pass the vote of the people and take effect January 1, 2015. The result would be no taxation on the mineral interests of the mines. In an effort to prepare for the passage of SJR15, SB400 and SB401 were put before the Senate Revenue committee last week. Both bills attempt to put into law the ability to somehow value and tax the mineral interest in the ground. In [a] work session yesterday, SB400 and SB401 were somewhat merged together and the amended bill was passed out of the committee in a unanimous vote. Because it has potential fiscal impact to the state and local government, it is exempted from today’s committee deadline to have a vote. It has now been referred to the Senate Finance committee for consideration.

OPINION – I always hate to step out too far on legislative issues, but in this case, I have to share my thoughts. First, the question of whether our lawmakers have the ability to create a special tax on the mineral value within Nevada law (NRS) is a big question. The Legislative Counsel Bureau (LCB) has given an opinion that the mineral could be valued as a personal property asset and thereby pass Constitutional muster of uniform and equitable taxation. It remains to be seen if the Mining Association would ultimately challenge this in court, though I think it likely that they would seek a court opinion if the bill passes. There are multiple problems with the bill; most specifically how we as assessors are to develop a value on the mineral. Second, even if we are somehow able to “create” a mineral value, that value would only be subject to the taxation level of the existing county general rate; not the current 5% rate allowed for in the Constitution. In terms of Eureka County, which has the lowest tax rate in the State of Nevada, that would be 1.8% resulting in a substantial loss of revenue to the State. Today, with the 5% rate, Eureka County exports at least 60% of the net proceeds tax generated in the County to the State. I still question how we make up that void in State revenues. The idea, as I understood it, was to remove the mineral tax from the Constitution so the ability to alter the rate and distribution of the tax would be availed to the Legislature. Unfortunately, I cannot see how we get there with the proposed bill. I fully expect zealous debate on SJR15 in the Assembly and the same as SB400 moves along in the Senate; however, as aforementioned, the attitude that mining somehow does not make their fair contribution to the State is so pronounced in the building, I expect to see something pass along to the Governor before the end of the session. Will he exercise his veto on the bill? Perhaps, but even if he does, we are left with the dilemma of the likelihood that SJR15 passes and the mineral tax no longer exists. Potentially positive for mining, but the miners have already stated that the existing system works and they are happy with their contributions to the State and to local governments and communities. Troubling to mining counties who rely on net proceeds taxes to fund capital projects in their communities.

(Eureka County Tax Assessor, Apr 12, 2013 at 2:46 PM PDT)

Cheers,

Colonel Possum