The luster is wearing off Nevada’s gold.
Gold prices last week fell below $1,300 an ounce for the first time in two-and-a-half years, and the price is down more than $600 from its record high in the fall of 2011.
The decline in price has led to the first hints of a coming contraction in the mining industry. Perhaps the most telling sign of an industry slowdown is the announcement by Newmont Gold Corp. — the second-biggest gold producer in Nevada — two weeks ago that it will lay off one-third of its operations staff at its Colorado headquarters to counter rising production costs and price volatility.
Omar Jabara, group executive for Newmont’s corporate communications team, says the reduction reflects the company’s decision to shift the focus of operations at its corporate headquarters to strategy and governance. Jabara says that though Newmont has not yet finished working through new operating models for its Nevada properties, the company expects workforce reductions at many of its mines and ore-processing facilities.
“Rising costs across the industry and continued volatility in metal prices only reinforces the need to run our operations as safely and efficiently as possible to ensure success in any commodity cycle,” Jabara said in a written statement.
Other mining firms are shaving staff to cut costs as well. Atna Resources of Golden, Colo., which is mining and developing the Pinson mine about 27 miles northeast of Winnemucca, trimmed its staff of 75 at the property to just 25 employees and curbed mining activity from a 24-hour operation to five 10-hour shifts each week.
James Hesketh, Atna’s president and chief executive officer, says soft gold prices and limited access to capital led to the change in operational strategy. Atna had been working on a plan to substantially increase gold production by developing an underground mine at the Pinson site that would have cost upwards of $72 million. However, Atna began to reshape its plans as gold began tumble. Gold hit a two-year low of $1,360 an ounce on April 15.
“Some of the mining systems we were utilizing made more sense at a high gold price than they do at a low gold price,” Hesketh says. “We have to step back and really modify the way we are approaching it to reduce costs.
“When a business sees the price of its product decline by 20 percent in a four-month period you have to step back and see if you can handle things differently to create a profitable situation.”
Atna’s new focus is mining ore that already has been developed and re-screening surface stockpiles to remove waste. Atna had been milling its sulfide ores under a toll agreement at Veris Gold’s Jerritt Canyon roaster and selling its oxide ores to Newmont. Those agreements still are in place, albeit at lower volumes, Hesketh says.
Gold’s wild ride would be the envy of roller-coaster aficionados everywhere. In 1980, gold peaked at $615 per ounce before receding, and it took another 26 years for the yellow metal to again cross that threshold. Gold hit a low of $271 an ounce in 2001, but between then and September of 2011 the price of gold rose more than 600 percent to a record of $1,923 an ounce.
John Dobra, director of the Natural Resource Industry Institute at University of Nevada, Reno, and a senior fellow at the Fraser Institute in Canada, says as prices tumble Nevada gold miners will be forced to mine higher-grade ores to remain profitable. Some Nevada mining firms had been tapping ore bodies with just .01 ounces of gold per ton, Dobra says.
“That is barely above dirt. If you go back 20 years ago when the boom first started, the average cutoff grade was around .05 a ton. Stuff they didn’t even think was ore 20 years ago they have been processing, and you will see a reversal of that.”
A slowdown in mining activity can affect a huge swath of industry in the state, from RV parks to drill rig operators, staffing firms to assay labs. Exploration efforts for new gold deposits already are being put on hold as junior mining firms struggle to raise capital required to initiate costly drilling campaigns and to pay for consultancy firms.
Keith Meyers, regional manager for National Exploration Wells and Pumps, says National’s drill work is tracking about half of what it did last year, and there’s been no increase in seasonal demand this year, either. That’s in stark contrast to 2010 and 2011, when mining firms were hard-pressed to get more drill rigs in the field due to high demand.
“Now there’s surplus capacity,” Meyers says. “It started to slow down last fall, and it really hasn’t picked back up.”
Ben Veach, Nevada division manager for JBR Environmental Consultants Inc., with offices in Reno and Elko, says several exploration programs were curtailed last year as clients reined in their expenditures. JBR provides long-range environmental planning work in advance of mining operations and works to secure permits for mining on public lands. JBR employs 45 in the state and hasn’t yet seen any real slowdown in its volume of work, Veach says.
“We are still operating the same as when the price was $1,700 an ounce, but what we have seen are minor interruptions due to financing of the junior companies. That has had a bigger impact on our company than the drop in the price of gold.”
Many RV resorts in Elko still remain full — Iron Horse RV Resort is at capacity and still has a lengthy waiting list of people try to get a permanent sport to park their RVs. Double Dice RV Park, which has 140 total spaces with 120 permanent slots, still has a long waiting list for the permanent sites but there’s been a noticeable decrease of miners coming in from out of town looking for work, the front-desk manager says.
If the price of gold continues to fall, though, mining firms will shed costly contract labor and rely on their own staffs. Construction companies also will feel the brunt of any slowdown in the sector, but key mine-site positions such as haul truck drivers, blast operators, diesel mechanics and mill and site workers will be the last to go, Dobra notes.
“When a company starts to feel the squeeze, the last place they cut is the people actually producing gold. The last people to be cut are the ones in Elko, though there will be some of that.”
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