Elko-area mines still thriving despite continued slide in gold prices
The state’s mining industry might be taking a hit right now due to low gold prices, but walk through the Northern Nevada city of Elko on any weekday morning about 6 a.m. and you wouldn’t know it.
June 21, 2014 - 9:33 pm
ELKO — Nevada’s mining industry might be taking a hit right now because of low gold prices, but walk through this city on any weekday about 6 a.m. and you wouldn’t know it.
Workers in pickups and mining rigs, most of them with the ubiquitous red warning flags called buggy whips, crowd Idaho Street, the main drag. Long lines of traffic roll in from the residential areas south of town along the Lamoille Highway as locals head to the mines for another workday.
Gold prices have plunged over the past 18 months, dropping from a high of about $1,800 an ounce in 2012 to about $1,315 Friday, but don’t tell the people of this mining-centric town in northeastern Nevada.
Although some operations are struggling to stay open, here the boom continues for the most part unabated.
Mining is the ninth largest economic sector in Nevada based on gross domestic product, according to the U.S. Commerce Department. There were 12,600 direct mining jobs in Nevada in 2012.
Nevada Mining Association President Tim Crowley said the lower price for gold has forced companies to become more efficient, although the price is coming closer to the $1,100-per-ounce average where mining can become unprofitable.
The situation is different for each mine, however, depending on the richness of the ore being mined, efficiencies and other factors, he said.
Richness is a relative term in the era of modern mining. A ton of material will typically yield less than an ounce of microscopic gold.
One of these efficient mines is the Cortez Mine, operated by Barrick Gold Corp. One of the largest mines in terms of productivity in the world, it is in adjoining Lander County about 70 miles southwest of Elko. The mine has two open pits and an underground operation. Barrick is the largest mining company in the world and is based in Toronto.
MODEL OF EFFICIENCY
The mine, in the shadows of 9,100-foot Mount Tenabo, produced 1.3 million ounces of gold in 2013 but production will be down this year, estimated at 925,000 to 975,000 ounces. This compares with total gold production in Nevada in 2013 of 5.5 million ounces.
About 1,300 employees and another 250 to 300 contractors work on the site, making a big impact on the rural Nevada economy.
The operation’s efficiency can be seen in the cost of production. In 2013 it was $433 per ounce, but will rise to an estimated $750 to $780 per ounce this year because of lower production and other factors, the company said on its website.
On a recent tour of the facility, the efficiencies were clearly on display.
In one open pit, haul trucks standing two stories tall backed up next to a $30 million mining shovel that can move 140,000 tons a day. The operator was filling up the 300-ton-plus capacity trucks with just three to four massive scoops of dirt, sending them off to dump the material in a waste area.
“Everything is clicking really good right now,” said open pit manager Mark Rantapaa, looking down on the activity from higher up in the pit. “He’s going to make a lot of tons if this keeps up.”
The company has 25 of the Liebherr T282 haul trucks, the largest in the world. They cost as much as $5 million and a single tire costs $50,000 to $60,000. Drivers, 20 percent of whom are women, operate the trucks sitting more than 17 feet high in the cab.
It is here where the purpose of the buggy whips becomes clear. A regular-sized pickup needs high visibility to ensure it can be seen by the heavy-equipment operators.
“The mining industry continues to go to bigger and bigger equipment,” Rantapaa said. “Moving more tons more efficiently with fewer people.”
The trucks were hauling away waste material. The gold-bearing ores are deeper underground and the unprofitable material has to be moved out of the way, which is one reason for the lower production estimates and higher costs for this year.
The process, which runs 24/7 except for a couple of days around Thanksgiving and Christmas, appeared almost choreographed as new dump trucks waited their turns.
RICHEST ORE MINED UNDERGROUND
Workers have a well-established routine in the underground mine as well. After drilling holes and filling them with an explosive jell in several tunnels, a series of blasts are detonated remotely every day after the first shift of workers has left the mine.
The low-tech but effective “brass board,” which tracks the number of workers in the mine using tokens moved from the “out of mine” position to the “in mine” side and back again, ensures no one is left below when the blasts are set off.
The workers return to “muck” out the gold-bearing ore and trucks take it out for processing. The new section of tunnel is then reinforced with metal bolts and heavy wire, setting up for the next round of blasting.
The underground mine, directly below the open pit operation, was initiated to get at some of the richer bodies of ore more quickly.
John Taule, general supervisor of the underground operation, said some blasted sections have yielded as much as 9 or 10 ounces per ton although most are well below that richness.
The work isn’t easy above or below ground but it pays well. The average mine worker’s salary is about $88,000 a year, compared with the statewide average for all jobs of $45,000.
Taule said the focus today is on safety unlike when he started in the business 38 years ago.
In addition to 12-hour shifts, workers are bused in from Elko and other nearby communities such as Carlin and Battle Mountain, adding two hours or more to the workday.
Work schedules follow a varying pattern of four or five days on, followed by a similar number of off days.
Underground surveyor Holley Samper was using a laser to make sure the tunnel was being blasted on the right coordinates.
“We don’t want to fall into any voids, we don’t want to fall into water, we don’t want anyone to get hurt,” she said, explaining the purpose of her efforts.
Samper, who has been working in mining for nine years and five underground, said she prefers the work to jobs on the surface.
“It’s a different camaraderie down here,” she said. “We take care of each other. I like it way better here.”
Her new partner, Cedric Turner, originally from Las Vegas, was in his first week working underground as a surveyor after being with the company for three years.
“I came here for the job,” he said.
SUSTAINABILITY THE GOAL
Matt Gili, general manager of the Cortez Mine, said the future of the operation is bright, with reserves estimated at 11 million ounces that should keep it operating at least to 2025 for the pit operation, and 2029 for the underground activity.
The company has identified a new find relatively near to the existing operations, called Goldrush, where there is a high probability of reserves reaching 16 million ounces, he said.
Barrick will have to go through an environmental review process with the Bureau of Land Management before mining can begin on the site, Gili said.
It will take several years, and require an investment of tens of millions of dollars before the Goldrush site can be mined, he said.
Crowley said those are issues the mining industry has with the federal approvals process: It is open-ended and can take years to complete. Although an environmental review is appropriate, setting a firm timeline for a decision would take the uncertainty out of the process, he said.
Crowley said the low price of gold has curtailed mining exploration in Nevada. The exception is for existing mines such as Cortez, where there is an ongoing effort to find additional ore bodies nearby to take advantage of the hundreds of millions of dollars in capital investment already made at the properties.
Rather than the old boom-and-bust mining cycle, the focus is on sustaining these operations over the long term, he said.
TAX CHANGES LOOM
The uncertainty stemming from a Nevada ballot question in November, which would take the 5 percent net proceeds of minerals tax out of the state constitution, is having some effect on exploration as well, Crowley said.
If approved by voters, Question 2 would give the governor and Legislature the authority to increase the tax rate, although that is unlikely to occur under the Sandoval administration given his stance opposing new taxes.
Crowley said policymakers can adjust the tax already. The Legislature in 2011 eliminated several deductions previously allowed to compute the tax, resulting in $25 million in additional revenue to the state and counties in the first year of the change.
But most Nevada lawmakers approved Senate Joint Resolution 15 in both the 2011 and 2013 sessions to put the measure on the ballot.
Several Republican state senators in the 2013 session also proposed to double the tax rate on mining in an effort to help defeat the Nevada State Education Association-backed margins tax that will be on the Nov. 4 general election ballot.
The proposal was opposed by Gov. Brian Sandoval and others and did not see a vote.
A strong supporter of Question 2 is Bob Fulkerson, state director of the Progressive Leadership Alliance of Nevada. For nearly a decade, PLAN has argued that mining should pay a lot more in state taxes.
This past week Fulkerson said the lower price for an ounce of gold should make no difference.
“No industry enjoys the special tax deals that giant mining corporations have enshrined in our constitution,” he said. “Because of these loopholes, the largest gold mining corporations in the world have been able to pay zero taxes on some mines that generate as much as a half a billion dollars in gold.”
Nevada has lost huge amounts of revenue because of the way the tax is crafted, Fulkerson said.
“Whether the price of gold is $5,000 or $500, it’s irresponsible tax policy for one industry to enjoy such privileged status,” he said.
PRICE DROP HURTS STATE, COUNTIES
Although the lower gold price has not significantly affected the more efficient mine operations, it has had a major effect on state and county tax revenue.
Originally projected to bring in about $200 million this year, the net proceeds tax instead brought in about $46 million to the state and counties.
Because the tax is paid in advance based on estimates, the reduced amount of revenue has caused issues in particular for some rural counties that depend on the levy to provide services to residents.
Nye County Manager Pam Webster said the reduction in revenue has been a huge hit on top of the loss of property taxes because of the recession and falling home values.
The county has used the volatile revenue for its operating budget out of necessity, and faces layoffs because it will only be a bit more than half of the $1.5 million estimated for the coming year, she said.
“Our general fund budget is only $30 million,” Webster said. “We’re looking at a 5 percent cut overall.
“We have cut back so far already; we’re looking at how we’re going to do this and still provide services,” she said.
Gili points out that it is not just net proceeds that the industry contributes to the state and local governments, but sales and use, payroll and other taxes as well.
The Cortez operation paid $57.2 million in state taxes in 2014. There are also local investments, including $1.3 million in scholarships and improvements to local infrastructure including roads, he said.
Cortez employees are also involved in their communities in many different ways, from youth sports to social services, Gili said.
Contact Capital Bureau reporter Sean Whaley at email@example.com or 775-687-3900. Find him on Twitter: @seanw801.