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Cominco seeks to slash tax bill
September 30, 1993
Michael Gerhardt
Arctic Sounder
As the Red Dog Mine struggles to stay afloat in a market flooded with low-cost zinc, its operating company, Cominco Alaska, has asked the Northwest Arctic Borough to accept reduced tax payments from the mine for the next two years.
Cominco wants to cut its payments to the borough by 50 percent in an effort to reduce its operating losses.
The borough receives nearly $2 million in taxes a year from Cominco — about 80 percent of its annual budget.
After receiving the request, the borough assembly met with Cominco officials in a closed meeting Sept. 27 to discuss the mine's finances.
At the assembly's regular meeting the following day, the assembly directed the mayor to look into the request and the effects it would have, and to report back to them by November.
Greene said he did not yet know what effect the cuts would have on borough operations.
The situation, he said, was difficult because the borough has an interest in keeping the mine running. Red Dog Mine is a major player in the Northwest Arctic Borough's economy.
In addition to making multi-million dollar payments each year to the borough and to its owner, NANA Corp., the mine employees more than 300 people. Almost half of those jobs are local, according to mine officials and the borough.
Red Dog produces zinc and lead concentrate; zinc makes up about 80 percent of the mine's output.
Although the mine has enough high-grade zinc and lead ore in the ground to last well into the next century, supply rose as demand dipped in the face of a worldwide economic recession.
When the mine began production in the late 1980s, zinc and lead prices were much higher, and the operation's future looked bright.
But zinc prices have fallen from around 77 cents a pound to about 44 cents a pound.
Cominco says it needs prices around 55-57 cents a pound to break even.
An agreement between Cominco and the borough calls for Cominco to make payments of about $2 million a year for the first 14 years of the mine's operation. At the end of the 14 years, the mine would pay the borough $27,000,000, according to Greene.
Green said Cominco and the borough are "trying to live with the arrangement that was made. At the time it was agreed to, everybody thought the mine would make a whole lot of money, and that NANA would be happy, that the borough would be happy."
But, Greene said, "somebody threw a monkey-wrench in the situation."
Cominco has been cutting operating expenses during the past year in an effort to stem financial losses. Employees were told last November there would be no wage increases in 1993.
Cominco officials say the mine is in for the long haul, but that low prices are taking their toll. "Our plans are to keep operating," Cominco President Ralph Hargrave said earlier this year. "The question is: 'How long can we keep at it?' As long as we can. But if this goes on a couple more years, that would be unacceptable.
"For the long term, we can't keep operating at these prices," he said. "We're losing too much money."
Fixed costs at Red Dog are high, with hundreds of millions of dollars in financial obligations to the borough, NANA, the state, and others.
Cominco owes more than $150 million to the Alaska Industrial Development & Export Authority for road and port facilities used by the mine to transport its ore concentrate.
Operating costs such as shipping and transportation are also high.
Officials do not expect an improvement in zinc or lead prices in the near future.
