Nevada miners: Rising price of gold shouldn't force rash decisions

RENO, Nev. — In August 2018, gold was in total freefall, plummeting to a low of $1,176 an ounce. Price for yellow metal — which is of utmost importance for Nevada's hard rock miners — was $1,356 just a few months earlier.

But what a difference a year can make. By mid-August 2019, gold rallied to crack the $1,500-an-ounce threshold, driven upward by low interest rates, continued global trade and geopolitical tensions, and plunging market yields.

The combination has investors pouring dollars into the commodities sector, with gold being in high demand as the safe haven benchmark.

While gold is enjoying its highest price in the past six years, some metals experts predict it very well could exceed $2,000 an ounce during an extended rally. Even if the yellow metal does crack that lofty barrier — its record high was $1,873 an ounce in September of 2011 — don't expect many changes in operations from Nevada's gold mining companies.

While the price of gold can determine cutoff grades — the amount of gold in the ore being mined and placed on leach pads — savvy gold miners don't make major operational decisions based on the price per ounce.

That could lead to overspending and questionable decisions; the single-family homes, townhomes and 450-person man camp built in Winnemucca in 2012 by Allied Nevada Gold comes to mind.

Greg Walker, executive managing director of Nevada Gold Mines, the joint venture between Barrick and Newmont, says the price of gold shouldn't determine a miner's approach to the mining business.

“Mining has been caught in the past where we focus on gold price and think we can go out and spend a lot of money,” Walker says. “Our behavior (at Nevada Gold Mines) is driven by being efficient, keeping costs as low as we can, and spending the appropriate amount on exploration. We spend the right money every year to ensure a long-term stable business.

“Where people get into trouble is when the price is high, they spend, but then business is not sustainable,” Walker adds. “When you keep costs low, you can operate even if the price is at $900 an ounce. You need to have more of a base-metal mentality. When copper is at a high price, you bank the margin and put it away, so when it's at a low price you can survive. Gold price won't drive our exploration, and it won't drive how we operate.”

Tim Dyhr, vice president of environment and external relations for Nevada Copper, says mining companies with an eye to longevity won't let price determine how they operate. The key to surviving brutal commodities downturns, he says, is to set goals and maintain costs.

“If you have to, you cut costs during prolonged downturns,” Dyhr says. “You just survive, and then you are positioned to capitalize when the market is good.”

A run-up in price does help the state's mining companies bank operating capital, of course, among other positives. In 2018 alone, Nevada gold miners produced 5.58 million ounces of gold, the Nevada Division of Minerals reports. That's down a tick from the 5.64 million ounces produced in 2017. Barrick and Newmont, the state's largest gold mining companies prior to their joint-venture agreement earlier this year, produced more than 4 million of ounces of gold in 2018.

Exploration activity by junior mining companies may see a spike as well — although past history dictates they, too, step cautiously. John Muntean, director for the Ralph J. Roberts Center for Research in Economic Geology at the University of Nevada, Reno, says investor money isn't yet pouring into the exploration sector like it did a decade ago when gold begin its historic bull run.

“A lot of the exploration in the state is done by small companies,” Muntean says. “It is all risk capital, and it's increasingly difficult to find new ore bodies. It takes a lot of drilling, and if you don't have the money to drill 20, 30 or 40 holes, you just aren't going to find anything.

“With the last run-up in gold price, there was a lot of money that came in (to Nevada) from all over the world, and there wasn't a lot of success to show for it,” he adds. “Some investors remember that. But I presume there will be (another) influx of money and an increase in (exploration) activity if the price keeps going up.”

Exploration activity in this current gold cycle likely will be tempered from past experience, Muntean adds — although an extended bull run may change that. Any future gold discoveries in Nevada likely will be under deep alluvial cover, he notes, which are difficult to efficiently explore.

“We haven't developed enough tools to find deposit quicker than drilling 50 to 60 holes, and no one has the stomach to do that anymore,” Muntean says. “The future is looking under cover, and that's all over the world, not just Nevada. The whole mining industry knows it has to go deeper either under gravel cover or bedrock cover. It's a matter of trying to understand our ore deposits better and seeing patterns that tell us quicker a direction or vector to go.”