Feature Stories - May 2006

MINING OUTLOOK: What Are Nevada's Prospects?

by J.D. Schlottmann Jr.

In July of 1999, the price of gold finally bottomed out at just under $253 an ounce. Gold prices stayed in that neighborhood for the next three years – presenting challenges to Nevada’s mining industry that removed many major players from the field and caused the decimation and dispersal of the workforce.

Today, with gold suddenly selling for about $550, a much consolidated and tempered mining industry is faced with new challenges. But, as Nevada Mining Association President Russ Fields said, “These are problems I’d rather face than $250-per-ounce gold.” He pointed out that industry activity is on a definite upswing, both in expansion of present operations and in exploration for new properties. The potential for continued high gold prices feeds industry optimism.

Mary Korpi, director of external relations for mining giant Newmont Mining Corporation, said over the last three years her company has invested more than $1 billion in Nevada for projects and equipment. Among the major projects is the aptly-named Phoenix property near Battle Mountain, which occupies an historic mining area with more than a century of mineral production to its credit. Using ever-evolving mining and processing technology, Newmont estimates it will be able to mine there for another 20 years. Newmont has nearly completed an all-new mining and milling facility on the property. At its peak, the construction project employed 750 contractors. At the end of March, 150 contractors were still working on the property.

While predominantly a gold mine, Phoenix also contains a significant amount of copper ore that will be encountered at various stages of mining. To take advantage of copper’s re-emergence as a profitably minable metal, Newmont has installed a flotation circuit to process the oxide ore. The circuit will operate only when an economic amount of copper ore is available.

Newmont is also ready to begin seriously mining underground at the company’s first-ever underground shaft mine. Called Leeville, located about 30 miles north of Carlin, the mine will exploit a high-grade deposit at a depth of 2,300 feet. Development of the mine began in 2002. Limited mining is now underway, but the plan is to ramp-up this spring and to be in full production by the fourth quarter of this year. Korpi said Newmont expects a seven-year mine life for Leeville.

Barrick Gold Corporation, whose largest property, Goldstrike, lies within view of Leeville, is also in an optimistic mood. The company merged in 2001 with Homestake Mining, adding several new mines to its portfolio. As the company’s Web site proclaims, “The merger created a combined company with the industry’s only A-rated balance sheet, a portfolio of large, low-cost properties and commanding land positions in prolific gold-producing regions of the world.”

In mid-2004, Barrick announced the East Archimedes development project, the company’s sixth project in development at that time. East Archimedes is located at the Ruby Hill mine site in Nevada, 110 miles south of the Goldstrike property. It has reserves of more than 1 million ounces of gold.

Permitting for the open-pit heap-leach operation has been secured and the two-year, $75 million construction phase is underway. The project is expected to enter production in mid-2007. A drill program is also underway at Ruby Deeps, exploring for deeper, high-grade mineralization below the East Archimedes deposit.

In March of this year, Barrick acquired Placer Dome, another world-class mining company, and all of its Nevada properties – most notably, Turquoise Ridge at the historic Getchell Mine near Golconda, and the Cortez Mine, southwest of Carlin. Both of these properties are geared up for major expansion.

What Challenges Do Miners Face?

Like everyone else, the mining industry is seriously impacted by rising production costs – most noticeably energy costs. Diesel fuel, used extensively to operate the huge equipment, averaged $1.45 per gallon in September of 2003. Gold at that time was priced in the high $300s. Today, fuel is about 75 percent higher, while gold prices have climbed about 50 percent. Mine and milling operations also consume tremendous amounts of ever-more expensive electricity.

Obviously, such price comparisons are oranges to apples, but the fact remains that all energy costs, as well as the costs of many of the commodities required by the mining companies, have skyrocketed. Dr. John Dobra, professor of economics and director of the Natural Resource Industry Institute at UNR, said, “Costs have gone up across the board.” Enough so, said Korpi, that “the need to operate efficiently is even more important now than it was at the lower (gold) price.”

To cut energy costs, both Barrick and Newmont have taken the initiative and gone into the power-generation business. Barrick constructed a natural gas-powered, 115.6-megawatt generating station near Sierra Pacific’s Tracy power plant that supplies a substantial portion of the electrical needs of the Goldstrike operation. The plant, which cost about $100 million to build, went on-line last November.

Construction on Newmont’s TS power plant is underway, and Korpi said the plant is scheduled for completion in 2008. Its output will go directly into the grid during its expected life of 40 to 50 years. Newmont estimates the plant will save the company $25 for each ounce of gold it produces. Korpi said 250 people are working on the power plant now, and that number will peak at about 640 around March of next year.

Another serious problem is a global shortage of industrial tires, which threatens to put a damper on the booming mining and construction industries. Ironically, the boom situation in both mining and construction, when combined with U.S. involvement in Iraq, is largely responsible for the shortage. The simultaneous worldwide ramp-up of mining, construction and military activities caught the tire industry off-guard and unable to produce enough large tires to meet demand.

“It's a triple whammy,” said Dave Wilkins, a spokesman for the Goodyear Tire & Rubber Co. in Akron, Ohio. “Normally, demand will increase from one sector, but not all three at once.” How bad is it? The Arizona Republic, reports that, “Used tires for mining rigs, which could be bought for $5,000 a year ago, now sell for $20,000 and up, and there are reports of new machinery being shipped to buyers without tires.”

The shortage is expected to last until 2007, possibly longer. “Every tire we produce is spoken for through 2006,” Wilkins said.

The mine-truck tires are as large as 14 feet high and weigh more than 15,000 pounds. They need to be replaced as often as every six months, and new ones can cost up to $50,000 apiece. Lou Schack, manager of communications and community affairs for Barrick, said his company is responding by “sectioning” – that is, retreading sections of tires that previously would have been considered worn out.

Finally, the mining industry is plagued by a lack of qualified labor, particularly experienced underground miners (underground mining has been out of favor in Nevada for more than 30 years) and trained diesel mechanics. Additionally, said Fields, retirement of senior employees is leaving mining companies “scrambling hard to backfill their positions.”

The industry is responding by increasing training programs for workers and trying to woo qualified people from other industries and, of course, from each other. Great Basin Community College is offering diesel mechanics classes with the goal of staffing the mines. Dobra figures the mines have increased their work force by 17 percent over the last year.

J.D. Schlottmann Jr.
J.D. Schlottmann Jr. is a freelance writer based in Winnemucca.