Established under the Ulysses Grant administration, every U.S. citizen 18 and older has the right to locate and claim federal lands under the General Mining Act of 1872.
Nevada's oh so precious tax rates
According to a 134 page report from the Fraser Institute, Nevada is one of the most stable, mineral-rich, least-taxed places to mine on the planet. Barrick Gold (NYSE:ABX) and Newmont Mining (NYSE:NEM), Nevada's largest gold producers, benefit from nearly non-existent tax rates. As a whole, mining companies in Nevada produced $8.7 billion worth of gold in 2011. That same year the industry paid $104 million to the state general fund for mining taxes— an effective tax rate of 1.19%. According to Nevada's Department of Taxation, the effective rate in 2010 was 1.08%. In Nevada, the tax rates are almost as microscopic as the gold being mined! Generally speaking, it takes at least 15 tons of dirt and rock to get one ounce of gold in Nevada.
Untouchable...at least until November 2014
Thus far, the General Mining Act of 1872 has remained blemish free, though not for lack of trying on the part of politicians. In 2007, the House passed the Hardrock Mining and Reclamation Act by a convincing 244-116 vote. The bill would have placed an 8% royalty on new mining, but died in 2009. A different bill was introduced to the Senate later that year, but died in 2011.
Having dodged tax increases for over 100 years now, one can't help but wonder, will the mining industry's luck run out in 2014? Shareholders of Barrick and Newmont will be especially interested in the outcome of Senate Joint Resolution 15 (SJR 15). If approved, SJR 15 amends the Nevada Constitution to remove the separate tax rate and manner of assessing and distributing the tax on mines and the proceeds of mines. It would repeal the 5% cap rate on mining operations and be the first major change in over 100 years. The Education Initiative PAC has also proposed a 2% tax on businesses with more than $1 million in revenues. Mark your calendar, the voting starts November 8, 2014.
Tax increase or not, Nevada's still golden
Despite a 37% decline in production (1998-2012), Nevada is still the largest gold producing state. Roughly 5.6 million ounces were pulled from the ground in 2012. Newmont has been mining the Carlin Trend, perhaps the most prolific mining district in the Western Hemisphere, for nearly 50 years. According to the Nevada Bureau of Mines and Geology, the Carlin Trend is over 50 miles (80 kilometers) long and five miles wide. More than 70 million ounces (and counting) of gold have been produced during its illustrious career, dating back to the 1860s. Barrick stands by Newmont, not only as one of the world's largest gold miners, but also as a neighbor. Barrick has seven active mines in Nevada. Newmont stays busy with 18 mines and 14 processing facilities.
Could there be a spinoff in the works? In the past few months, Barrick CEO Jamie Sokalsky and Newmont CEO Gary Goldberg have both acknowledged that combining their Nevada assets into a single entity is an idea that has been discussed. Describing themselves as "next-door neighbors," most analysts would agree that significant cost savings would be achieved through cooperation (or combination). When doesn't cooperation work? Odds of a spinoff are low, but the market would act positively if it happens. A pure play on Nevada gold assets would be desirable to many investors.
Five places to make a BIG discovery
Gold Rush reality television fans ready to jump off the couch, professional geologists, and exploration stock speculators can all improve their odds by exploring the right locations (online and on the ground). By total claimed acreage and number of gold mines, the top five counties for gold exploration in Nevada are Elko, Eureka, Humboldt, Lander, and Nye. Geologists estimate that 74 million ounces of gold are sitting below these counties, and that's only considering the proven and probable (P+P) reserves of Newmont and Barrick.
One purely Nevada gold stock
The Hycroft mine, owned by Allied Nevada (NASDAQOTH:ANVGQ) is located in one of the counties that it should be located in— Humboldt. Under different ownership, one million ounces were produced between 1987 and 1998. Having 11,875,000 ounces of P+P reserves and a $385 million market value, the equity sells for the equivalent of $32 per ounce. Allied expects to produce at least 180,000 ounces of gold and 1 million ounces of silver for 2013. CEO Randy Buffington's resume indicates that he was previously a mine manager for Barrick. He was involved with operations at Goldstrike, Ruby Hill, and Bald Mountain (all Nevada). On paper he looks highly qualified to lead Allied toward their 2014 production goal of plus 200,000 ounces.
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