Economy bites Alaska Native corporations

Until last year.

The Anchorage Native corporation got stung big-time in 2008, thanks to the nation's biggest stock market blowup since the Great Depression.

CIRI lost $22.8 million due mostly to $57 million in stock market losses, it says. The company's business ventures -- including investments in real estate, hotels and tourism, and telecom -- generated a $30 million profit, softening the blow. Last year's loss comes after the company posted a $57.6 million profit the prior year.

"We did experience a significant amount of losses," said Patrick Duke, CIRI's chief financial officer.

His company isn't the only Native firm with the stock market blues.

At some point during last year the state's regional Native corporations had more than $500 million invested in the stock market, according to a review of the available financial reports. The Native firms over the years have amassed multimillion-dollar stock market portfolios, where they place profits saved for future business investments, money for shareholder permanent funds and windfalls from business deals, among other funds. The sour stock market prompted some corporations to sell much of their stock during the year.

Besides CIRI, another stock market victim was Sealaska Corp., a regional Native corporation in Juneau. Sealaska says it lost $41 million overall in 2008, compared to the $30 million profit it posted the prior year. The market losses totaled $54 million on investment portfolios worth more than $100 million as of Dec. 31, reflecting the magnitude of losses most stock market investors endured last year. Again, income from some of Sealaska's business ventures softened the impact of the losses.

Sealaska Corp. said 2008 was "extremely difficult" and 2009 will be "equally challenging" in a letter to shareholders attached to its annual financial report in April.

From March through December last year, another regional corporation, Bristol Bay Native Corp., said it lost $31.9 million in its investment portfolio, making the company unprofitable for the nine months. The company will not post results for its fiscal year that ended March 31 until late summer. Like some other Native companies, Bristol Bay said profits from its business operations have offset some investment losses.

Other Native corporations whose fiscal years recently ended -- including the financial heavyweight Arctic Slope Regional Corp. -- have not yet posted their results.

POISED FOR REBOUND

In the last three months of 2008, the stock market was down 22 percent. The market was down another 12 percent in the first quarter of this year. But for many individuals or companies that lost money in the stock market, those losses remain a "paper loss" -- not a loss of actual cash -- because they haven't sold the investments.

That's the case for Sealaska, which says it still owns many of its stocks and bonds and plans to recoup its losses in the future. But it's not the case for CIRI.

The companies all have different corporate personalities and a different level of risk they can tolerate, CIRI spokesman Jim Jager said.

CIRI cashed out a huge swath of its investments late last year, turning its paper loss into an actual loss. That was part of a tactic to use the losses to offset gains from selling resorts it had owned. The company now qualifies for a $20 million-plus tax refund from the IRS, company officials said.

CIRI says it now has about a quarter of its assets in stocks and bonds. In previous years, that percentage has been higher, Jager said.

"At no point did we panic and get out of the market. History shows that if you try to time the market you end up behind instead of ahead. We did not make significant changes during the year," Duke said.

Other Native companies didn't invest heavily in the stock market or else they smelled bad news and got out.

Calista Corp., for example, shifted millions of dollars out of stocks to safer money-market investments. Still, the investment portfolio fell in value to $17 million as of Dec. 31, down from $24 million a year earlier, the company said in its annual report.

Executives at NANA, a regional corporation in Kotzebue, said this week they became concerned about the long period of stock market growth in late 2007 and began a gradual shift to less risky investments.

"We started making adjustments and kept doing it through August of 2008," said Kevin Thomas, NANA's chief financial officer.

The company lost roughly $2 million on its stock investments last year, but it posted a $28 million annual profit as of Sept. 30, the end of its fiscal year. NANA expects to be profitable in 2009 too, Thomas said. NANA still had $36.4 million in stocks and mutual funds as of Sept. 30, as the markets were just beginning to plunge.

SILVER LINING

Despite the stock market woes, all Native corporations received a big financial boost last year from resource extraction on land owned by Arctic Slope Regional Corp., NANA, CIRI and Sealaska.

The boost mainly came from high prices -- at the time, anyway -- for oil leases on Arctic Slope and CIRI land and metals dug from NANA land. Federal law requires the Native regional companies to share their profits from resource extraction as a way to balance the resource-rich regions with those that are less endowed.

Here's some examples: Sealaska said it received $55.6 million last year in profit-sharing on resource extraction from other Native corporations, up $24 million from the previous year; CIRI said it received $11 million in 2008, compared to $6 million the year before.

"No doubt, those royalty payments are important to us," said Helvi Sandvik, president of NANA Development Corp. NANA owns the huge Red Dog zinc and lead mine near Kotzebue. NANA said it paid $122 million in mineral royalties to the other Native corporations last year.

But like oil prices, zinc prices have declined due to less global demand. The price of zinc was about 70 cents per pound this week. Two years ago, it was $1.74 per pound. Red Dog royalties will likely be smaller this year, NANA executives said.

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Find Elizabeth Bluemink online at adn.com/contact/ebluemink or call 257-4317.