A year-long run of gold prices at or more than $1,000 per ounce, capped by a new record high of $1,261 per ounce set in June, appears to be strengthening Alaska's gold mining and exploration industry. Consulting geologist Curt Freeman said his company, Avalon Development, has experienced a "...crazy, busy summer — best one in several years for us." Although market prices fell more than $100 per ounce in late July off of the new record high, gold has climbed back to more than $1,200 an ounce in early August, a pattern expected to continue in the near future. "The longer-term trend is upward," said Rich Hughes, a mining industry consultant and co-author of the state-published Alaska Mineral Industry Report. "This is attracting money to the gold exploration sector and Alaska is getting its share of that investment." Both Hughes and Freeman noted that strong gold prices aren't necessarily causing a similar increase in stock prices for junior exploration firms that are looking for gold. "The general economy and the gold price have really made little difference in the exploration industry, aside from the fact the we have more unemployed people to pick from for work," Freeman said. "The junior markets are in OK shape. The producing companies are actively searching Alaska for new opportunities, but being very selective about what and where they acquire." Unlike exploration spending, new gold mine development in Alaska may not be so closely tied to current gold prices. "Good discoveries drive development, not necessarily price," Hughes said. "Although a low price might delay the development of a good gold property until the price recovers — a function of lack of funding for development in low price cycles." The decade-long trend of increasing gold prices is welcome by existing Alaska gold producers that weathered the sub-$300 per ounce prices 10 years ago, including the Fort Knox gold mine near Fairbanks. Alaska's largest gold producer for more than a decade, Fort Knox slipped to second place in 2008, behind the underground Pogo mine near Delta Junction. This year, Fort Knox anticipates boosting its annual production back up to 339,000 ounces, thanks to a full 12 months of production from its recently commissioned heap leach facility. That $103.6 million project, along with a related $193 million pit expansion, would not have been constructed in the low price environment of 10 years ago, said Lauren Roberts, Fort Knox vice president and general manager. "Sustained higher prices are a good thing, because it gives us confidence that they will be around for a while and not just be a spike in the metal price," Roberts said. That helps with long-range planning for future capital investment decisions, like those facing Fort Knox's owners, Toronto-based Kinross Gold. Similar to last year's work, the company is conducting this summer a substantial drill campaign to identify more gold resources within or next to the existing open pit mine. The goal is to identify a potential Phase 8 pit expansion, which would add to Fort Knox's mine and mill life, currently projected to end in 2016, according to the operation's 2010 annual report. Ore will be stacked on the heap leach through 2021. "We have not yet developed another expansion," Roberts said. "We will have to complete exploration for several more years before we can fully delineate a potential economic expansion." Gold prices will play a role in that decision, and Roberts anticipates strong prices in the future. "We're looking at the worldwide output of gold, which is in decline, and the number of new, large-scale discoveries is also declining," he said. "One point to the demand side being strong is international and U.S. monetary policies ... there is a lot of spending of borrowed dollars, so the fundamentals for strong metal prices going forward is good." Demand for gold as a secure investment is also seen as a contributor to the trend of increasing prices in the recent past, and the anticipation of rising prices in the future. "The economic distress in this country, and for the most part in the world, is driving the gold mining industry in a positive direction to satisfy demand as an asset for preservation of capital," Hughes said.

Source