Why a surge in gold prices won’t solve Alaska’s budget woes

When oil prices rise, the state of Alaska gets a windfall in taxes and royalties.

When gold prices rise — as they have, in dramatic fashion, this spring — state revenue barely ticks up.

Industry critics often draw this comparison, arguing that the huge mining corporations that operate in Alaska aren’t compensating the state enough for the minerals they produce.

Those minerals yielded just $28.5 million from Alaska’s mining license tax, on average, during each of the past four fiscal years.

In that same period, the state’s oil and gas industry paid an average of roughly $1.2 billion each year in production taxes, according to state figures.

“Essentially, Alaska is subsidizing a huge giveaway of its public resources,” an economist wrote in a 2022 report commissioned by the mining watchdog group SalmonState.

Mining boosters and some economists say simply comparing state revenue from oil production and that from mining can be misleading, given the huge scale and high profit margins of the petroleum industry. They also note that the value of Alaska’s oil and gas pumped from state land, where production is subject to royalties, dwarfs that of minerals mined from state land.

“Our world class oil fields — Prudhoe Bay, Kuparuk — are in fundamentally a different category,” said Dan Stickel, chief economist at the state’s revenue department.

The market value of all the minerals produced in the state last year was roughly $4 billion, according to state estimates — though mining advocates say that number overstates actual value because mines sell the concentrate they produce at lower prices than pure metals. The total market value of oil produced on the North Slope was about $14 billion.

Even if the state raised taxes on mining companies, economists have long said the industry isn’t large or lucrative enough to make up for Alaska’s decades-long decline in oil revenue.

But the recurring question of whether miners should pay more has bubbled up again recently, with calls from newspaper publishers and environmental advocates to tweak the state’s mining tax and royalty policies to generate more income for Alaskans.

These suggestions have not translated into any formal proposals from elected officials. But they come as record gold prices promise to boost some of Alaska’s biggest mines, as more businesses apply for permits to mine in Alaska and as the state government navigates an ominous financial outlook.

The state uses a few tools to generate income from mining.

It levies a severance tax on minerals, called the mining license tax. It takes 3% in royalties from mining profits on state land. It rents mineral claims and leases. And, like other businesses, mining companies pay corporate income tax.

State agencies brought in an average of $90 million from those sources and various other taxes and fees, such as tolls on a state-owned ore haul road, each year between 2016 and 2021, according to state data.

That’s a fraction of the more than $2.5 billion in annual revenue that mining companies averaged during that period, according to state estimates.

Last year, the Red Dog zinc mine in Northwest Alaska reported more than $600 million in gross profits; Fort Knox, the state’s biggest gold mine, reported more than $300 million in profits after deducting operating expenses, according to corporate financial disclosures.

Proposals to generate more state revenue have focused on raising production royalties and overhauling the mining license tax — a maximum 7% levy on profits that hasn’t changed since 1955.

For large mines, the license tax is currently a $4,000 payment, plus 7% of net income over $100,000. New mines get a 3.5-year exemption.

By contrast, the state taxes oil at a base rate of 35% of net production value — the value of the oil produced minus certain capital and operating expenses — with tax credits that increase when oil prices fall.

Without knowing the taxable income of each mine and oil operation and exactly how much each owes in taxes — numbers that aren’t disclosed publicly — it’s difficult to compare the effective tax rate across each industry. The effective rate is the percentage of a company’s profits that it pays in taxes, and it’s a figure that economists often use to describe a company’s tax burden.

A recent report on mining policy commissioned by the Alaska Conservation Foundation recommended restructuring the mining license tax so that it applies to a company’s overall income rather than being tied to profitability.

“We’re just giving away these precious metals and allowing these multinational corporations to dig them up,” said Dan Cannon, senior public lands coordinator at the Anchorage-based conservation organization. “What does the average Alaskan get from this? Not much.”

If the state kept the maximum rate at 7%, but taxed gross instead of net income, that would be a “very large tax increase,” according to Stickel, the state economist.

The state’s most recent revenue forecast assumes about $3.6 billion in gross mining income during the next fiscal year. Its forecast of $36.7 million in revenue from the existing, profit-based tax structure, would be similar, roughly speaking, to a tax on gross income at around 1%, Stickel said.

Even if revenue stayed steady, a gross income tax “would be more regressive – with tax due even when a mine is unprofitable and with a lower tax burden when there is higher income,” Stickel wrote. “What impact this structure would have on production and company decisionmaking is difficult to say.”

Industry representatives say raising taxes would make Alaska less attractive to miners and would thwart investment, potentially leading to decreased revenue in the long term.

“Alaska’s mining record does not show that we are a jurisdiction widely viewed as a low-tax environment where industry is flocking to invest,” trade group Alaska Metal Mines wrote in a recent paper responding to the report commissioned by the conservation foundation. “This is not a record that supports a significant increase in revenue obligations for the industry.”

A tax hike could make new mines too expensive to build and operating mines too costly to expand and keep in production, said Karen Matthias, director of Alaska Metal Mines. Costs are already higher in Alaska than other states because of its remoteness and lack of infrastructure, she added.

In the past four years, Alaska’s annual mining license tax revenue ranged from more than $50 million to a loss of about $1 million. That loss, reported during the 2024 fiscal year, was caused by a shift in the timing of one-time tax filings and refunds, as well as by low base metal prices and high operating costs caused by inflation, according to Stickel.

Rents and royalties are a smaller fraction of Alaska’s mining related income and have recently amounted to just over $15 million in yearly revenue. Corporate income tax paid to the state by mining companies has averaged some $7 million over each of the past five years.

In all, mining accounted for just 0.2% of the state’s total revenue last year — a proportion that state officials expect to double this year.

With gold prices soaring, the revenue department forecasts mining license tax revenue to see a modest boost from the recent average of $28.5 million — reaching about $33 million this fiscal year and $36 million the following year.

The state won’t see a bigger bump because costs have gone up across the industry and not all metal prices are rising like gold’s, Stickel said.

Zinc prices, for instance, have fallen about 8% this year, potentially cutting into profits at Red Dog mine, a pillar of the state’s industry.

That mine also is often cited by industry supporters as an example of how mining stands out more for its impact on local and regional economies than on the state government.

Red Dog accounts for more than 80% of the Northwest Arctic Borough’s revenue through payments similar to taxes. It has also generated billions of dollars for shareholders of the Alaska Native corporation that owns the land where the mine sits, which receives a 40% royalty share of net profits.

Similarly, large mines are the biggest property taxpayers in the Juneau and Fairbanks areas.

“Where mining truly makes a difference in Alaska is regionally,” Matthias said. “Red Dog is to the Northwest Arctic Borough what the entire oil industry is to the state.”

Northern Journal contributor Max Graham can be reached at max@northernjournal.com. He’s interested in any and all mining related stories, as well as introductory meetings with people in and around the industry.

This article was originally published in Northern Journal, a newsletter from Nathaniel Herz. Subscribe at this link.