Thursday, February 06, 2003
Cover story: The price of gold
Gold seekers blaze a trail of joy and tears
By Heidi Walters
I came down with a fever a few weeks ago. It came on slowly. There'd been reports, here and there, of the price of gold rising higher than it's been in six years; there'd been mention of "cautious optimism" in the mining industry. Then there were less cautious headlines: "Mining: As Good As Gold," (Las Vegas Review-Journal, Jan. 7), "Gold Price Soars Anew on War Fears" (Canada's National Post, Jan. 17), "Gold and Oil Prices Soar As War Looms," (ninemsn.com's news site, Jan. 17), "Gold--the Closest Thing to a Sure Bet for 2003" (National Investor, Jan. 10), "Nervous Investors Buy Gold by the Rucksack," (London Times, Jan. 8).
Curious, I made some phone calls and activated Google--and that's when my fever blossomed.
Not gold fever, but gold research fever. There's a difference.
Gold fever's what's happening now, with the dollar's value adwindle against the rising euro, the dotcom boom a fresh and bitter memory, and President Bush threatening to bomb Iraq any day now. In times like these, people, especially in less stable countries, start hoarding gold as buttress against government collapse. That, in turn, helps drive the price up. The day I called John Dobra, an associate professor of economics at the University of Nevada, Reno, the U.N. weapons inspection team had just found some empty chemical weapons canisters in Iraq.
"There's a number of things behind the rising price of gold," Dobra said. "The clouds of war is one of them. Today, the price went up $8 on the news that they found those canisters."
The gold price had slunk around $270 an ounce for the three years previous (partly because foreign central banks suddenly dumped some of their gold reserves on the market to buy U.S. bonds, which induced layers of uncertainty). This was after highs in the 1980s around $500 an ounce, and even a one-month spike of more than $800. The low prices prompted mine companies to suck in their tummies, and mine employment in the state dropped from 15,000 to 10,000. Then, last April, the price climbed to $300 an ounce. And it kept climbing. By Tuesday, Feb. 4, it was at $378.30 per ounce.
And when the gold price goes up significantly, people get giddy. Some invest in gold shares, others buy gold coins. Still others think about selling their coin collections. It's very emotional. Small, rural mining towns, hit hard by mine layoffs when prices were down, feel stirrings of life. And that's because mining companies, finding it once again profitable to go after their lower-grade ores, may ramp up operations and rehire workers. And they may resume exploration into new territory.
Gold research fever, on the other hand--well, that's when you fall down an Internet mineshaft that leads into tunnels of gold lore, news and greed: newsletters put out by goldbugs, the true believers in gold, predicting untold riches; stock quotes and analyses; announcements of new mining ventures; jewelry enticements. And now and then, you wander into a stope--a huge mined-out area like an underground living room--filled with stories of death and destruction, of cultural and environmental havoc.
* * *
I had to feed the fever. So I made more calls. I bought The Power of Gold: The History of an Obsession, by Peter L. Bernstein, and spent nights with well-meaning King Midas and his backfiring wish, gold-thirsty Queen Hatsheput, cruel Spanish conqueror Pizarro, miners in the 12,000-foot-deep South African mines. And that's just the first few pages.
I visited coin shops and gold jewelry dealers--a cagey lot, some of them, with their entry buzzers and their double doors of iron-and-locks and their guarded language. I made a sentimental foray into memory to recall my grandpa's stories about his gold mining days in the 1930s in California and Nevada. I remembered a couple of poignant summers spent at Western Shoshone gatherings in Crescent Valley, Nev., where they spoke with sadness and anger of the mining industry's work on their traditional lands. I pondered how I spent four years in college as a geology major, dreaming naively of a job where I could walk all day hammering on rock outcrops and enjoying the sunshine, then bailed out upon seeing the light--in the deep-blue toxic waters of the enormous Berkeley Pit, Anaconda Mining's leftover copper mine in Butte, Mont.
And then, one fine morning, I got up at 4 and drove into rural Nevada for a looksee. I wanted to know what all this gold fever means, in the end, for Nevada. Would there be more mining? Would more land be torn up? Would the state ever get rich from it?
* * *
Nevada's filthy with gold. Whatever the low price of gold's been doing to profits and exploration over the past six years, gold production has steadily, with little dips along the way, risen. Every mining expert I call likes to start by telling me, "If Nevada were a country, it would be the third-largest gold-producing country in the world, after South Africa and Australia."
Over the past few years, mining companies have produced around 8 million ounces of gold per year from Nevada mines--that's 72 percent of U.S. production and 10 percent of world production, says state geologist Jonathan Price, director of the Nevada Bureau of Mines and Geology.
Production has risen partly because production costs at major Nevada mines "remain among the lowest in the world," says Price. And the rise is partly a reflection of the lag between the time when gold prices were high in the 1980s and early 1990s, which spurred a lot of activity, and the actual time, years later, at which the new mines could start producing. Production peaked in 1998, at 8.9 million ounces, says Price, and tapered off to 8.1 million ounces in 2001.
One area in Northern Nevada, a 40-mile swath along the I-80 corridor where most of today's gold activity takes place, contains the second-largest known concentration of gold on the planet, behind a site in South Africa. Jean Cline, a geology professor at UNLV, says Nevada "is probably the the best place in the United States to search for gold." Some geologists even rate Nevada as having the greatest potential in the world for future gold discoveries. There are several reasons for this, says Price. In a nutshell: Nevada's accessible and substantial gold dowry is the result of geological serendipity aided by modern technology and abetted by a relatively mining-friendly regulatory attitude.
But even with those facts under my belt, for some reason I'm not ready for what Price tells me next: "We're in the biggest gold boom right now," he says. It began around 1980.
The notion wipes away the Old West patina that, even though I know better, often coats my mind when I think of gold in Nevada and the West, and sends the clanking of that rucksack-ladened donkey I always imagine, following its prospector down from the hills, fading into the distance. The 1840s gold rush and the Mother Lode; the Comstock Lode in Virginia City in the 1870s, its miners giddy with gold fever until silver steals the day; the next silver and gold rush in places like Tonopah and Goldfield and Cripple Creek, from 1900 to 1920: "Most people think of those as the gold booms," Price says. "But this is the big-time for the industry right now."
It's bigger, even, than that much earlier gold rush, in the 15th century, when all those heavy ships o' gold went sailing from the New World to Spain and Portugal and England.
Which all just prompts the eternal question: Why gold?
* * *
...gold is so beautiful it was Jehovah's first choice for the decoration of his tabernacle: "Thou shalt overlay it with pure gold," He instructs Moses on Mount Sinai, "within and without shalt thou overlay it, and shalt make upon it a crown of gold round about." That was just the beginning: God ordered that even the furniture, the fixtures, and all decorative items such as cherubs were also to be covered in pure gold.--Bernstein
* * *
That is the answer: Gold is beautiful. It's the color of sun, life, flowers and the middle of a rainbow. It's also rare, heavy, soft, easily workable and doesn't tarnish or corrode.
"In Cairo, you will find a tooth bridge made of gold for an Egyptian 4,500 years ago, its condition good enough to go in your mouth today," Bernstein writes.
Because it lasts, most all of the gold ever mined--about 125,000 tons--is still around. It has served as power, finery, security--and money. Until 1971, the United States was still on the gold standard, its paper money backed by an actual store of gold.
Most of the gold mined today goes into 22-carat or higher jewelry or bullion (coins, bars). And much of that is hoarded. About 15 percent of gold goes into commercial uses: cell phones, computers, heat shields, medical equipment, dentistry.
But what about that hoarding?
"About two-thirds of all the gold produced annually just sort of disappears between Beirut and Hong Kong," says UNR's Dobra. "India is the largest consumer of gold, where it disappears into vaults. People don't trust the government. Arabs are amongst the biggest hoarders of gold--they convert all their assets, their paper money, to gold." In some countries, he says, where a woman can't own property, "if her husband divorces her she can still walk out of the house wearing [her pounds] of gold jewelry."
Dobra says Americans, on the other hand, tend to trust our paper money. But there are exceptions.
* * *
The first thing that catches my eye when I find Phil Carlino's Fremont Coin Co. Inc. on Boulder Highway and Sahara is the name of the building he's in: Fort Knox Storage. Fort Knox, Ky.--that's where the United States stashes its own hoard, about 147.3 million ounces of gold, in the U.S. Mint. The sign's printed on his outside door, too--but he seems surprised to hear that when I tell him. He doesn't own the building. His Fremont Coin shops, however, have been around for 42 years. At one time he had five stores in town.
"In the early '60s we got prospectors in our downtown store all the time," Carlino says, once he's buzzed me in through the outer and inner doors. "They'd bring in gold dust and nuggets and we'd weigh it to tell them what it's worth. We don't see them here now. Now we see coin collectors, primarily."
The second thing that catches my eye is the huge golden chunk inside the glass case, amid numerous gold coins. It makes my heart thump until I realize it's just iron pyrite, fool's gold.
Carlino says that, right now with the higher gold price, investors are making profits of more than 20 percent. "And the expectation of most people is that gold and silver will continue to climb."
As we talk, a middle-aged couple brings in a suitcase full of bags of coins and jewelry--junk silver, they say. They want to know what it's worth (silver, much cheaper than gold, is also rising, as is platinum, much rarer and more expensive). But these people aren't feverish--they're just taking care of some business.
Carlino's business partner, David Gere, comes out to help. And he starts talking about goldbugs and their newsletters and about some of them, back in the high 1980s, who were fanning the flames by predicting the gold price would go as high as $4,000 an ounce. Carlino's customers leave, and he resumes talking about people turning to gold and silver for security.
"I remember in 1980, thereabout, in Utah, where in order to pay for gasoline, you had to give the gas station silver coins," he says. "They had two prices, one for cash and one for silver coin."
* * *
Later I walk into a gold jewelry store. They've just opened and a woman, who asks not to be identified, is laying gold and platinum jewelry on its velvety display beds. She says the rise in the gold price doesn't affect her inventory--she sells it based on what she paid for it. If she has to restock at a higher price, then those items will be sold at a higher price.
When precious metal prices go up, she says she does get more people calling to ask what she's paying. Her store buys old jewelry and coins, and melts them down and makes new jewelry--that and fixing things are what help the store survive in what she says are lean times for jewelers. She worked in another store in the 1980s, and remembers how when the gold price reached $800 per ounce, "people were buying gold chain like it was going out of style." This time around, she's had a few calls but it's nothing like back then. "Older people, especially, who went through the Depression--they tend to hoard gold," she says.
But she doesn't recommend it. "I bought gold coins at $400 and I've been sitting on them for 15 years," she says. "That's not a good investment."
I ask her if she thinks gold has also become sort of a cheesey adornment. She says it's true that younger people, especially, are turning to silver and platinum and white gold. "In the '70s, remember everybody wore zodiac signs and 16 gold chains around their neck? That's kind of passé now."
That's here. But reports from India say demand for yellow gold has continued to rise.
* * *
Nations have scoured the earth for gold in order to control others only to find that gold has controlled their own fate.--Bernstein
* * *
If the current rise in the gold price is sustained, says the Nevada Bureau of Mines' Price, production in the state could go even higher. It would take some time, because first there have to be new discoveries, then reports have to be written and permits obtained and bonding secured for cleanup, then infrastructure has to be built. And then mining can begin. It could take between 10 months and 10 years to start a new mine operation, says Price.
"You will be able to see individual mines increase their production" right away, he says. That's if they have lower-grade ores (less gold per ton of rock) to mine. When the price is down, it is more cost-effective to restrain mining to the high-grade ores, and then expand mining to the lower grades, which yield less for the same effort, when the price makes it profitable to do so.
But the most immediate and greatest effect of a significant rise in the gold price is on exploration for new ore bodies to mine.
Alan Coyner, administrator of the Nevada Division of Minerals, which handles mining claim applications, confirms that exploration is up. "From July 1 to Dec. 31, 2001, we recorded 89,275 claims," Coyner says. "From July 1 to Dec. 31, 2002, we recorded 93,975 claims. That's an increase of 4,700 claims. And, anecdotally, the Division of Minerals is getting more inquiries."
Is any of that agitation in Southern Nevada? Not much, says Coyner, although there are a couple of big mines nearby in California. But Searchlight, Beatty, Nelson, Gold Butte, Goodsprings--those just aren't in "elephant country." "Elephant country is where the elephants are, so that's where you go to find elephants," Coyner says. "The elephant country is Carlin."
* * *
It's a Friday morning in January and I'm standing in former-elephant country, in Goldfield, three hours north of Las Vegas. Ben Viljoen, chairman of the Esmeralda County Commission and a lifelong miner, stands just inside the county courthouse and points at the floor in the entryway. "Just to show you that money was no object--they imported marble tile from Italy." That was in 1907, when the courthouse was built and the town was at its zenith--some 35,000 residents--during the first major gold boom for this region. "When they built the courthouse," says Viljoen, "Goldfield was the richest city on earth. It cost a half-million dollars to build it." And at that time, the price of gold was set at $20 an ounce.
Goldfield is a crumbling beauty of a town, with only a few grand buildings still intact and inhabited. It arose from a 1902 gold discovery, grew to be the largest city in Nevada at the time, and eventually lurched and fell into historic "living ghost town." Its latest bid for some kind of a renaissance has been land and building auctions. And now, perhaps, another gold boom.
Viljoen is hopeful. He say the population of the county, around 1,200, is half of what it was 10 years ago. "In the last 10 years, three or four mines closed, one of which employed 80 to 100 people," he says. But he doesn't blame just the low gold price on the collapse. He blames the federal Bureau of Land Management, which manages 99 percent of Esmeralda County. "Since the BLM and the Nevada Division of Environmental Protection have decided mining is bad for the environment, it's just killed mining in this county," he says. Take the claims assessment system, for instance.
Before 1991, a miner had to do $100 worth of "assessment" on each claim. Assessement was supposed to be actual mine and road improvement, but some miners were just going out and pushing dirt around in piles and making a mess. So in 1991, the BLM started requiring that miners pay a $100 claim assessment fee, per claim, directly to the agency and to leave the actual site alone unless it was for real work. Viljoen says small miners couldn't afford the multiple claims fees, lost their claims, quit coming to town--which translated into a loss of business.
"The answer would have been for the BLM to do their job, to grab those guys and make them reclaim" their messes, he says.
Well, the BLM does require that mines clean up their messes--companies have to put up bonds to cover the costs. Environmental watchdog groups complain that these bonds often are not enough to cover actual cleanup costs, and they point to examples of bankrupt companies where this was the case. But Viljoen also complains about "the hellacious bonds" killing mining.
So, when the town went bust the last time, and stayed there, Viljoen says the county--which has four small towns, Goldfield, Dyer, Silver Peak and Gold Point--tried to diversify. "We've tried to promote it as a recreational area, a place for Las Vegans to bring the wife and kids four-wheeling and rock hunting, and that has begun to pay off," he says. "But the problem here in Esmeralda is, people are spoiled. People are used to the high pay of mining, and tourism is minimum wage, and requires no education. Mining is the backbone of the county still. We're hoping for a big comeback."
If that happens, though, a bust will eventually follow if Nevada history tells us anything. So it's a marvel that Viljoen stands by mining so. His reasoning is classic rural Nevadan: "Well, we've been accepting [boom-bust] for the last 100 years," he says. "What Esmeralda has been trying to do is to get BLM to sell off some of their land so we can bring in more industry."
* * *
Same day, and now Steve Craig, an exploration geologist and president of the Nevada Miners and Prospectors Association, is driving me from Goldfield out across the desert to see some mining--old, new, reclaimed, unreclaimed. He points out tailings piles too old to fall under new regulations. He points to a grassy, contoured hill, in the process of being reclaimed, that stands out amid the mint-and-olive green of the desert but which he says is a sign of progress in terms of reclamation techniques. It just takes time. See those piles of dirt, he says--they're from when miners were performing "assessment" work on their claims improperly. We pass a batch of white plastic tubes, claim stakes, standing upright in the ground. "When I see those I stop and pull them out," Craig says. Critters get trapped in them and die, so now they're illegal. A claim post these days must be a two-by-two solid-wood post. Another sign of progress, he says.
Craig lives in Reno. He used to do exploration for other companies, including Kennecott. He now is running, with a business partner, a small, publicly owned mining company called Golden Phoenix. He's in his late 40s and seems absorbed by the geologist lifestyle. His parents were miners and he was "raised on a mine dump" in Leadville, Colo. If there's any aspect of "male geologist" that he lacks, it's the requisite beard and beer belly. "People say I look like Phil Donahue," he said with a laugh when I met him at the courthouse and blurted, "You look familiar!" Later, driving across a pretty slice of Nevada, he munches on a rabbity lunch that astonishes: carrots, snap peas, a couple of leaves of lettuce, tiny slices of cheese and a cracker or two. He says he is, in fact, mindful of the potential for a beer belly. He puts almost 50,000 miles on his pickup every year as he roams the state.
As we drive, Craig constantly tries his cell phone, which out here often gets no signal, but which he calls an essential. He also watches the speedometer. "They really patrol out here," he says. "That's where the county gets their money--it's a real cottage industry."
Craig has an agenda today that he's mapped out thoroughly: He will show me the sunny side of mining, how it has progressed from the old days--no regulations, nasty messes left everywhere--to today's mining under modern regulations. Sure, his spin's good for business, but he seems truly into it. "I'll pay you to [let me] work, I love it so much," he says.
After introducing me to Viljoen--who is also supervisor at the Mineral Ridge mine, Golden Phoenix's mine above Silver Peak--so I can "get the rural town side" of the story, we head north to a site past Tonopah called Midway. Midway's a joint venture exploration project between a Canadian exploration company, Global Geological Resources, and Newmont. (Newmont and Barrick are the giants in Nevada mining). Though it's farflung from most of Newmont's other projects, mostly to the east on the Carlin Trend, this "grassroots" site (not yet mined) could end up being rich, says Craig. It's in the same long, broad corridor that produced the Comstock.
Here, there's a powdery dirt road, a trailer sitting on the original find--Craig, incidentally, in a former job incarnation helped discover the existence of gold here--and two drill rigs. Unlike the Carlin Trend ore with its microscopic gold, rock here has "visible gold" in it--tiny veins you can see. They're drilling to determine how big the ore body is, and if it's big enough to be worth building a mine. "This is good-looking rock," Craig says.
Even so, the two guys running one of the rigs, Barlow Anderson and Michael Fenton, don't seem to have gold fever. "Dear," says Fenton goodnaturedly, "it's just rock. They just pay us to get the rock out of the hole."
As we walk away, the smell of big sagebrush overwhelms. "I love the sage and I love the wide open spaces," says Craig, sniffing. "I'm a country boy. You can drive up one of those valleys, and be the only one within 10,000 square miles. It's just such a rush. And if I can help a few people out, give 'em jobs, and get filthy rich in the meantime--don't print that," he breaks off, laughing. "I'm still trying to figure out how to get filthy rich."
Which brings us back south a bit, and over to the scrabbly small town of Silver Peak, and high up into the pinyon and juniper hills above it where the Mineral Ridge mine sits at 7,300-plus feet elevation. It's an old mine that's been worked by a succession of companies. Golden Phoenix bought it during the recent industry slump for $225,000--pits, cyanide leach pads and solution ponds with their bird-rebuffing covering of plastic balls, piles of ore, processing facilities, gold-silver doré bar molds, underground shafts. Craig figures its proven worth is $30 million, with the potential to produce 210,000 ounces of gold. His company is getting ready to jump-start it back to life, once they raise the bonding. They'll finish off the ore already waiting to be processed, and then expand the underground mining. After that, he says, they want to retire and reclaim the ponds and install an innovative new system that will allow them to extract other commercial minerals, along with gold, found in this particular rock. And, of course, in the end it'll all be reclaimed, he says.
It's a touchy topic, reclamation. Critics say mining isn't doing a good job, and that it's not putting up enough money for reclamation. But Craig says that process is improving--and he offers his way of looking at a mine: Land isn't "worth" anything, he says, until someone finds a resource in it and retrieves it.
"They invest, build a mine--and, yes, make a profit. But a mine provides a lot of jobs for people, and they will pay taxes," he says. The mines also pay property taxes on buildings and equipment. And they pay a mining net proceeds tax.
As for impacts, he says mineral deposits are "very rare and only appear in certain places. In the overall scheme of things, geologically speaking, the impacts are very small. There will still be wide open spaces--if you don't like an impact, look the other way."
* * *
On a cold and rainy day last May, a mix of Western Shoshone and indigenous rights activists gathered inside a big green army tent on Mary and Carrie Dann's ranch in isolated Crescent Valley. The valley's in north-central Nevada, in Carlin Trend country. While the wind slapped the cloth walls and whirlwinds of dust shot through the tent flaps, Tom Myers of Great Basin Mine Watch spoke over the din. He's a hydrologist, and he's studied the areas where the big mining companies in Nevada--Newmont, Barrick, Cortez Gold, Placer Dome--have mined, or wish to mine.
"Just this past month," he told the quiet crowd, "along the Carlin Trend, they've just poured the 50 millionth ounce of gold. That's $15 billion. And that's all gold that came out of Shoshone lands."
He said mining, past and present, has polluted water in some places and could do so again. "Over 50 percent of mines have leaked contaminants into the groundwater," he said.
And modern mines, despite what the industry says, do present such problems. One of the biggest fears, he said, is that the dewatering from massive open-pit mines along the Carlin Trend, as they begin to fill up when the mining stops, will pull in water and dry up streams and springs in the entire region for centuries.
"There are five new potential mines for this valley alone," Myers said. And another one, Newmont's proposed Phoenix Project south of Battle Mountain, is predicted to leach acid into the groundwater for 20,000 years.
But, to the Shoshone, perhaps the most egregious new mine proposal is one that would gouge out part of Mount Tenabo, a snow-capped mountain nearby that figures into the Shoshone's creation story. In that particular case, looking the other way might not be an option.
* * *
What Myers and the Shoshone and other critics of the industry want is to see more responsible mining, more money put up for cleanup, less destruction, more involvement in the review process, and the application of higher taxes and some royalties.
The industry balks at the taxes and royalties. It'd kill the incentive to mine in Nevada, says Dobra. Mining's the second-largest industry in Nevada, and that's a measurement of wealth exported, but not employment. "Five percent of the gross state product is produced by about 1 percent [mining] of the work force," Dobra says. "It's a small industry with a big impact." Those employees are also among the highest paid in the state, at an average $62,000 a year.
Russ Fields, president of the Nevada Mining Association, says in the past five years, Nevada mining paid about $100 million per year in state and local taxes.
Andrew Barbano, a labor and industry watchdog based in Northern Nevada and a newspaper columnist, says the industry owes the state more. He says the mining tax on net profits lets the big mines get off easy, and he resents that many of them are foreign-owned operations living cheap off Nevada land.
"Mining doesn't pay spit," Barbano says. "It takes 30 tons of Nevada to get one lousy ounce of gold. The cost to actually produce the product? About $85 per ounce." (Industry estimates are a tad higher.) "So why do they have wholesale layoffs and blame it on the price of gold? So they can make profits that, rather than outrageous, are obscene and are approaching immoral."
The industry would respond that, actually, the costs for mining are huge--millions in bonding and infrastructure just to get started. To which critics, such as Dan Randolph with the Mineral Policy Center, retort: "It's the cost of business."
As for taxes: Mining originally wasn't taxed at all in Nevada until 1989, when voters passed a net proceeds tax on mining, a large portion of which goes into the rural counties and schools.
Barbano says it should have been a gross proceeds tax, like other businesses have to pay. "With a gross proceeds tax, they would have been contributing tens of millions" a year, he says. And that would have come in handy now, with Gov. Kenny Guinn this year scrabbling to fix a $700 million-plus budget deficit by raising taxes. But it would take a constitutional amendment to change the mining tax.
"The reality is, these companies have been raping and pillaging Nevada for over 100 years," Barbano says. "The mining industry needs to be treated like the gambling industry. They do tremendous damage to the health and welfare of the environment and the community they operate in. So--fair taxation? Probably 11 percent on the gross would be better. Raise it 10 percent, and you erase the state deficit."
* * *
...gold reflects the universal quest for eternal life--the ultimate certainty and escape from risk. ...The key to the whole tale is the irony that even gold cannot fulfill that quest.--Bernstein
* * *
So, is gold itself to be hated, then? No, of course not--it's just an inert metal. But what if the rabid gold mining could just slow down a bit? Maybe, Myers says, the central banks in the world should ease their grip on the 57,000 tons of gold "just sitting in their vaults doing nothing."
If they let it all out into the market, the price would go down. Then, says Myers, "There will be enough gold to provide for our entire demand for 25 years."
And after that? Dobra says demand would shoot higher than ever before. And the cycle would begin anew. As Bernstein concludes, "the story of gold has no ending."