A year ago, Nevada gold producers were eying the future with hope. A string of incredibly bad years with dismal prices for their product had forced them to mine only their richest ores, depleting their reserves terribly and causing many operators who had no reserves of rich ore to close up shop.
But in May of 2002 a subdued sense of optimism was rising. Gold prices had shown a tendency to remain above $300 an ounce – a somewhat magic number that the miners figured could sustain their industry, perhaps even revive some of those mines that had fallen during the rough years.
It was also apparent that the surviving companies had been tempered by the experience. Synergies had been developed by consolidation that allowed more efficient processing of ore, and leaner (unfortunately for local economies) workforces learned to produce more. All in all, Nevada gold mining was a stronger industry ready to take advantage of a more favorable market.
Still, caution was the password in the summer of ’02. As Nevada Business Journal reported last July, “Any positive changes in Nevada’s mining will have to be fueled by a sustained higher price. If the price remains high, established companies will once again invest in equipment, increase their reserves and re-extend mine lives.”
Gold averaged $310 in 2002. As forecast, mining companies began pumping exploration dollars into properties they owned or controlled, and reserves climbed rapidly. Newmont Mining Corp., for instance, reported that its Carlin Trend mines had replaced depletion for the first time since 1996. Barrick Gold Corp., another of the state’s (and the world’s) major producers, reported that a “good year at Goldstrike” had helped boost its reserves substantially.
Apollo Gold, which acquired the Florida Canyon Mine and the adjoining, undeveloped Standard Mine from bankrupt Pegasus, embarked on an aggressive drilling program at both mines. Apollo management reported identifying 318,400 ounces of gold in the “probable” and “proven” categories at Standard and said drilling in and around existing pit areas at Florida Canyon had replaced almost the entire 121,516 ounces of gold mined in 2002 with new proven or probable gold reserves.
We can only assume that exploration was expanded to one degree or another at nearly all of the 24 significant Nevada gold mines last year, but it wasn’t until 2003 that the great potential for another real gold mining explosion became apparent.
What’s Different Now?
Most notably, 2003 has boasted even higher gold prices than 2002, and there seems reason to believe they could be pushed much higher.
Russ Fields, president of the Nevada Mining Association, noted that gold has stayed “pretty much above $325” this year. In fact, from January through May, gold averaged $347.70. It closed over $382 at one point in February. As this article was being compiled in late May, the price reached $371.70. These kinds of prices are pure gravy to mines that could profitably produce gold and ramp up exploration when the price averaged $37 per ounce less. They would spur interest in exploring for gold by any number of companies and prospectors, but it’s the prospect of these prices going even higher that is really fueling a potential boom.
Mary Korpi, director of external affairs for Newmont, said her company was not in the business of predicting the price of gold, but, “We do believe that with the forces in the market, the price will continue to rise.”
Why? Global gold production is declining. Companies that chose to mine in the third world are retreating to safer political climates. This bodes well for the future of gold prices, since a reduced supply will naturally lead to a higher price. It also bodes well for the future of Nevada, the third largest producer of gold in the world. It seems a logical place to search for gold without fear of terrorist attacks or government destabilization.
The weak U.S. dollar also has to be considered – the value of the dollar and the value of gold tend to have an inverse correlation.
Finally, producers are showing a marked interest in de-hedging. Producers often contracted to sell their gold at a future time for a set price. This is referred to as hedging. When gold prices were falling, a company could expect to sell for better than spot price. During lean times this practice helped keep some companies profitable. It also served to keep the supply side of the supply-and-demand ratio on the high side. Gold sold ahead is considered to be existing supply even though it hasn’t been mined yet. Press releases from AngloGold and Barrick Gold claim that producers’ de-hedging will count for a minimum of 300 tons demand next year.
The combination of all these factors means a new gold rush has been steadily building up steam in Nevada.
According to Doug Driesner, deputy administrator for the Nevada Department of Minerals, the number of new mining claims staked in this fiscal year has climbed by 8 percent over last year. Driesner said the rate of filing claims had “been going down for about four or five years now.” The biggest drop, he said, was in 1993 when the Bureau of Land Management initiated its $100-per-claim yearly assessment fee. Apparently, exploration companies have now decided the fees are not out of line with the potential. “This year’s a turnaround,” said Driesner.
Driesner said major claim-filing activity has been going on in the central part of the state north of Tonopah, in Esmeralda, Nye and Mineral counties and, “just about anywhere – mostly in the areas where there are trends and big mines.”
Much of this activity comes from the juniors – lean companies with one or two experienced mine finders and small support staffs. Often, their plan is to find and prove up a good property, then partner with or sell to one of the majors.
Tonopah and Goldfield to rise again?
The mining activities going on around Nevada at this time are too extensive to list. However, some have the potential to cause real economic changes in the state. Tonopah and Goldfield, which owe their existence to the mining boom of the early 1900s, were mostly skipped over in the gold rush of the 1980s and ’90s. They may never regain the opulence of their past, but this newest rush may breathe life into them once more.
Golden Phoenix Minerals, a Reno-based development company, is planning to reopen the Mineral Ridge mine about 35 miles from Tonopah this summer. Company Vice President Steve Craig said his firm bought the completed mine out of bankruptcy and has devised a cyanide vat-leaching system that will bring gold recovery to 95 percent – up from 75 percent recovery allowed by the previous heap-leach process. The property has mineable reserves of 209,200 ounces and should employ about 60 people.
Six to eight miles north of Tonopah, Midway Gold Corp. has found a property with enough potential to interest mining giant Newmont. John Mudge, director of environmental affairs for Newmont, said his company bought into the project, dubbed Midway 15, and has an agreement to provide not only money, but expertise. About 350 holes had been drilled – one third of them core, two-thirds reverse rotary – all about 500 feet deep. He said gold was found at about 80 feet, including some visible gold in the core.
So far, said Mudge, the drilling hasn’t been extensive enough to prove the economic value of the property, but this summer the partners hope to complete permitting and be engaged in in-fill drilling (drilling between the presently-drilled holes) that should delineate the true potential of the ore body. Mudge feels there is good potential for a mine, most likely an open-pit operation.
Just outside of Goldfield, another junior, Metallic Ventures, Inc., is drilling on two properties and has reported favorably on gold recovery at both. This renewed activity raises the hope that these historical mining cities will bloom again.
Gold prices should have a noticeable impact in Humboldt County as well. Placer Dome has decided to reopen Turquoise Ridge at the Getchell Mine. John Porterfield, Getchell’s general manager, said the company will utilize modified mining methods to stabilize the ground, which previously had caused safety problems for this underground operation. The new techniques will include drilling smaller-diameter holes when mining and tunneling.
Porterfield said the mine will continue to employ 65 contract miners in the presently active Getchell Underground and will employ 300 to 325 local personnel for Turquoise Ridge. Winnemucca, from which most of the new hires will come, suffered badly when gold prices sank in the ’90s.
Winnemucca also waits hopefully for results from re-exploration of the former high-grade Sleeper Mine. X-Cal Resources Ltd., an exploration company now on the site, is betting that former owner, Amax, missed several major gold deposits on the 20,000-acre property.
Whether or not the boom of ’03 proves to be as grandiose as hoped, renewed exploration can only benefit Nevada. Millions of dollars are being pumped into the economy as the players rush to claim gold. The higher price the gold mining companies are enjoying now will be directly reflected in the Net Proceeds of Mines Tax, which benefits the counties where mining occurs.
But still higher gold prices could mean so much more. In addition to increased tax revenues for rural counties, they could lead to higher employment and to other economic development activities in these historic mining areas.