Emperor has no clothes - the sequel

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Since the publication of my guest column on March 9, I have been stopped in stores and on the street and have received numerous calls, cards, e-mails, letters, messages, not only from Lancaster County and Kershaw residents, but from residents of other counties and states – some from people I do not even know. These people are male, female, liberal, conservative, Democrat, Republican and of different ethnicities. Concern about a policy for the wasting of taxpayer money seems to cut across all sorts of lines.
The messages were similar: “That is what I thought and feared,” “Your column made my day.” “Thank you for having the nerve to write it,” and my personal favorite from a Kershaw resident: “Makes one wonder why people think they were given brains.”
To be clear, I am pleased that the gold mine company has come here. Being a true believer in capitalism, I hope it makes lots and lots of money for its shareholders. I certainly do not think ill of them for accepting the tax credits and other incentives given by County Council. That’s just good business. As I was taught in the art of successful negotiations: “If they are dumb enough to offer it, by all means, be dumb enough to take it.”
My column just hit the high spots of an official county report, along with providing a little commentary. As I see it, the thrust of the report is: There has been little return on the large amounts of taxpayer dollars that council has given away, and the policy should be changed. Read it for yourself.
In view of County Council Chairwoman Kathy Sistare’s March 23, column, I am compelled to briefly revisit the most egregious and indefensible example: the Haile Gold Mine giveaway.
Let’s examine just one of the justifications given by the chairwoman: The price of gold was below its present price when the deal was signed, and as a result, the mining operation would not be profitable. Said another way, we just had to give the company tax money, otherwise it would not make it here. In Washington, D.C., that is called a “bailout.”
Now I am fully aware that the chairwoman was not on council on Dec. 1, 2008, when the deal was adopted. She must, therefore, have her trusted source(s) for her information. I, of course, have never been on council and have gleaned my information from the research of official county reports, ordinances, newspaper accounts and interviews given by Haile Gold Mine (Romarco Minerals Inc.) CEO Diane Garrett to Canada’s Business News Network, among other things.
On April 1, 2009, just four months after the deal was adopted, “The Mining Weekly” reported that the company had $25 million in the bank and no debt and that Garrett touted the company had been granted tax credits and incentives that will amount to some $3 million annually, including a lot of tax-free equipment for the project. That is where the big money is. She is quoted in that article as saying that they (Lancaster/SC) desperately wanted this project. Negotiation pointer: Being desperate is not what you want to be when negotiating a business deal. If you are, it is imperative that the other party not recognize that – otherwise you end up with a deal like this one, Front Door Communications or the landfill.
Perhaps more telling is that same article reports the costs at the Haile Gold Mine will be well below the industry average, at just $266 per ounce, thanks to low power and labor costs, among other things. The article estimated annual gold production of 140,000 ounces.
The chairwoman is correct in saying that the price of gold was lower when the deal was made. What she fails to say, however, is that on Dec. 1, 2008, when the deal was adopted, gold was around $800 per ounce. I’ll add an additional $150 of cost per ounce just to make sure that I cover non-cash and off-site costs so that the cost for calculation is not $266, but $416 per ounce. Do the math with me: $800 – $416 = $384 x 140,000 = $53.7+ million. Now that was when gold was at only $800 per ounce. Was this company on the borderline of profitability? Madame chairwoman, just saying it does not make it so. Remember what the CEO said about the cost.
You can read this and other Mining Weekly articles at http://www.miningweekly.com or get a copy, along with the report and other research information at my office.
Let’s look at the profitability issue a little closer. It may be reasonable to ask whether there would be any point at which council would think the gold company will become profitable and be able to make it without taxpayer help. Perhaps when the price of gold reaches $1,164 per ounce as it did on Dec. 7, 2009, when more tax benefits were given or when the price of gold reaches $1,361 per ounce as it did on Nov. 30, 2010, when even more tax benefits were given?
But what happens if council ever does believe the gold mine has become profitable? Do the tax credits end or get repaid? Of course not. Why would anyone ever think or expect that? Council’s tax benefit deal has continued to expand as the price of gold has skyrocketed to its price on March 24, 2011, about $1,427 per ounce. In comparison with this, the federal bailouts don’t sound all that bad. At least we got some stock in the companies for our money and some portion of them might get paid back.
So what does Lancaster County receive in return for giving away our tax dollars? A mining operation and all that comes with that? Yes. Some jobs that would have come anyway? Yes. The company headquarters offices? No. Turns out the main offices will be located – you guessed it – in York County. Do you think any of the officers, managers, and other office workers will live in Kershaw and commute?
Help me remember. Did council raise our taxes for this year to keep our libraries open? I guess what is given away unnecessarily must be replaced.
Oh, and just when you thought it could not get any worse, all of that and future tax increases will be paid not by the mining company and other companies similarly situated, but rather by residents and businesses that have been here providing jobs for decades.
“But he has nothing on, cried all the people. The emperor was startled by this, for he had a suspicion that they were right. But he thought, ‘I must face this out to the end and go on with the procession.’ So he held himself more stiffly than ever, and the chamberlains held up the train that was not there at all.”

“The Emperor’s New Clothes” by Hans Christian Anderson.

Madame chairwoman, stop this procession.