2006 to be a 'Golden' year?

2006 has been the year I have been waiting for, as this is the year that Novagold/Alaska Gold is expected to make its 'go/no go' decision on their Rock Creek gold mine prospect. The stars appear to be aligning up as the price of gold is up over $100 per ounce from last year at this time; it has basically held above the $500 mark since November. Today's price is just over $560. What does this all mean? 120 new mining jobs in town, $22 million in annual expenditures, $13.5 million in consumables and $8.5 million in payroll. The average salary is expected to be between $50,000 and $60,000 percally held above the $500 mark since November. Today’s price is just over $560. What does this all mean? 120 new mining jobs in town, $22 million in annual expenditures, $13.5 million in consumables and $8.5 million in payroll. The average salary is expected to be between $50,000 and $60,000 per year. Just what kind of impact will Rock Creek have on our economy? This is the same question the Fairbanks North Star Borough asked when they wanted to determine the impact that the Fort Knox gold mine had on the Borough’s economy. I took some of the key points from the 'Economic Impact of the Fort Knox Mine on the Fairbanks North Star Borough' that was completed in 1999 by the McDowell Group to try and extrapolate what we can expect from Rock Creek.

The proposed Rock Creek mine is similar to the Fort Knox mine as they are both open pit, shovel and truck operations and a processing mill. Fort Knox employs 260 miners whereas Rock Creek will employ around 120. The employment multiplier for the Fort Knox mine is 2.2, meaning a total of 572 jobs are created by mine activity. In addition to the 260 direct jobs, the Fort Knox Mine generates 312 support sector jobs in Fairbanks. Using the same 2.2 employment multiplier, Rock Creek could potentially produce 264 jobs in Nome. 120 would be direct mine jobs and 144 would be support sector jobs. Support sector jobs could be in mine safety training, oil & lube sales, fuel delivery, welding, electrical work, logistics, trucking etc. Support sectors could also be added employees at any of the air freight carriers, store clerks, auto repair, basically all the jobs that make an economy go. The Fort Knox Mine spends over $35 million on local goods and services. Virtually all goods that are available locally, are purchased locally.

Fort Knox Mine spending generates a $107 million impact on the borough economy. Total mine-related impact on Fairbanks is approximately 2.5 times direct spending. The proposed Rock Creek Mine is estimating $22 million in direct spending, $13.5 million in consumables and $8.5 million in payroll. Using the same 2.5 times direct spending, Rock Creek could generate a $55 million impact on the Nome economy.

Successful development of the Fort Knox mine played a key roll in acceleration of mining exploration in the Fairbanks North Star Borough. We have seen exploration activity at NovaGold's Big Harrah property as well as other activity on the Seward Peninsula.

The Fairbanks residential and commercial electric rates are lower due to Fort Knox. Fort Knox purchases over $14 million in electricity from Golden Valley Electric Association. GVEA residential rates are lower than they would be without Fort Knox, 7% for residential customers and 4% for smaller commercial customers, and 10% for larger customers. It is estimated that electric rates in Nome would also be reduced once Rock Creek comes on line.

While the above multiplier effects may not be the same as Fairbanks, they do provide us with a good 'rule-of-thumb' of what can be expected with the development and ultimate production of the Rock Creek mine. They also do not reflect the potential impact the construction of the mine will have on Nome. I believe this is truly going to be an exciting year for Nome

In the November Issue I started with the heading 'A Good First Start' noting the City Council's approval of a 1% sales tax reduction on our utility bills. Considering the large increase in our cost of living, this was a good first start.

Over the last several months I attended the Nome Common Council meeting supporting a further reduction in sales tax and elimination of the personal property tax in order to provide our members and the citizens of Nome relief of the added tax burden caused by increase in fuel costs. In a Chamber of Commerce work session we developed the following points:

Based on the information provided in the City Council work packet, we estimated that FY 06 Sales Tax numbers were underestimated or under-budgeted by over $1 million. This was based on actual sales taxes collections to date as well as projecting forward prior historical numbers. We discussed a number of options including elimination of sales tax on food items, but in the end came up with the following:

A. Eliminate sales tax on ALL utilities. This would benefit all tenants, homeowners and businesses. This would total around $230,000 reduction in sales tax receipts.
B. Reduce Sales Tax on home heating fuel and gasoline/diesel from 5% to 4% on an annual basis. This would reduce estimated sales tax revenue by $250,000; however, the new cost structure at the old 4% sales tax rate would still bring in the same amount of sales tax as FY 05.
C. Eliminate Personal Property Tax on all inventories held for resale. The net affect is $150,000 reduction in sales tax receipts. We also looked at the Personal Property Tax as a 'fairness issue' as it amounts to double taxation. The 'fairness issue' is the fact that any inventory held as of 12/31 is charged the Personal Property Tax and then the 5% sales tax when sold. The elimination of this tax would help our local businesses compete with Anchorage based vendors such as Home Depot, Costco, Office Max as well as the internet. The local businesses could reinvest this savings in new inventory, employees and/or price reductions.

The net affect would be a reduction in tax collections of $630,000, still leaving around $370,000 in increased sales tax collections.

As reported buy the media, The City Council voted to provide temporary tax relief by eliminating the sales tax on food items (as classified by the USDA Food Stamp Program) from January 15th through May 15th and temporarily eliminating the Personal Property Tax on inventory held for resale for FY 2006.

I would again like to thank the City Council members for working with us to bring us this tax relief, and of course chamber members Mark Johnson, Jeff Darling, Mark Sackett, Bob Hafner, Jerald Brown, Scot Henderson, Sherrie Yonker, Mike McNally and the others that I missed for their hard work and guidance in this project.

I now look back at the process and I have to believe that working together we can make some great strides in not only improving our business climate, but also the quality of life here in Nome and the region. Now to take on this energy issue, which has caused this problem.

CRUISE SHIP MARKETING PROJECT

We are currently working on a cost breakdown for the development of this video/DVD. Once we have finalized what we are looking for in this project, we will request proposals from various production companies to produce the final product. I have had several discussions with Clinton White at the UAF Northwest Campus to possibly incorporate an educational aspect to this project.

We are scheduled to visit both Gambell and Savoonga at the end of January for a one day seminar on “The Cruise Ship Product” for lack of better name. We will be traveling with David Karp as he will present what the cruise ships are looking for in a shore excursion, how you package your product and how to price the product.

We are also in discussion to work with the World Wildlife Fund in the development of this product. The WWF is currently working in the Chukotka region training residents there on how to develop eco-friendly tourism as part of the Beringia NPS project. They have also assisted Norway in developing the eco-friendly cruise ship industry in the north Atlantic and Norwegian arctic. In addition to their technical expertise, they have a 5 million membership roll that could provide us with 5 million prospective customers.

It is my goal to have this product completed by the end of July and to be part of the new product presentation at the AITA annual convention.

This project is designed to bring national and world awareness of our regions beauty and the amenities that we can offer our visitors. In 2004, the Northwest Cruiseship Association estimated the Alaska cruise ship industry brought over 900,000 tourist to the State and spent over $762 million on the local economies. They created would be support sector jobs. Support sector jobs could be in mine safety training, oil and lube sales, fuel delivery, welding, electrical work, logistics, trucking etc. Support sectors could also be added employees at any of the air freight carriers, store clerks, auto repair, basically all the jobs that make an economy go.