By Norman Williams
Bee Staff Writer
Published Jan. 18, 1998
When Homestake Mining Co. axed its Lower Lake mining operation at McLaughlin Mine in 1996, it spelled the end of 200 jobs and an 11-year reign as California's most productive gold mine.
It was a place where, during its heyday, more than 300 workers churned out 250,000 ounces of the precious metal annually. But in 1996, it only managed to mine 170,000 ounces.
Now, the 105 remaining employees spend their time sifting the 14 million tons of stockpiled ore that's already been unearthed, unsure what they'll do when that job's done sometime in 2003.
"How about surviving? It's tough with the price of gold down and the cost of capital so high."
-- Michael Miller, president of the Original 16 to One Mine in Alleghany
Those are the harsh realities of big-time gold mining in the state made famous by the great Gold Rush. Only about 20 mines in the state employ enough people to be classified as major. And although California is still the second-highest gold-producing state, output has fallen each of the past three years.
Mining companies don't seem optimistic about fortunes turning anytime soon.
"How about surviving?" quipped Michael Miller, president of the Original 16 to One Mine in Alleghany, when asked how the state's gold industry is doing. "It's tough with the price of gold down and the cost of capital so high."
Miller over the past few months has poured money into upgrading equipment and has increased employment from about 44 to more than 50. It's a big push in a go-for-broke effort to make a big strike. The company doesn't have much room for failure.
Miller's mine is one of a few remaining major underground operations. Most companies use the cheaper open-pit method. It allows them to churn higher volumes of earth at a lower cost, but it also yields a lower percentage per ton of gold-containing ore.
McLaughlin, open since 1978, did its open-pit mining in the Lower Lake area near Clear Lake.
"We had 350 employees on the payroll when we were mining this operation," said Pat Purtell, general manager of Homestake's McLaughlin property. "We were the largest private employer in Lake County during our heyday."
But Purtell said the mine closed down due to a combination of factors, including falling gold prices over the past few years, and a lack of success at finding new areas with a high enough concentration of gold.
Plummeting returns on investment and the need to cut expenses have affected the entire state industry, hampering its growth. In 1994, the state's mines produced 967,700 ounces of gold, according to the Division of Mines and Geology in the California Department of Conservation.
The next year that figure fell to 842,300 ounces, and in 1996 it was down to 835,900 ounces, or about $326 million in gold production for the year.
Still, no one is predicting that gold production is disappearing. Experts say much of the decline has to do with the worldwide price of gold, which, as of Monday, had dropped to $278.50 an ounce. The price of gold reached a recent peak of $416.25 per ounce in 1996.
"The price is terrible for us now," said David Hyatt, general manager of Glamis Rand Mining Co.'s Baltic Project Mine in Randsburg. "And so until it goes back up again, there's nothing we can do but hold back on expenses."
Hyatt's mine geared up in 1986 in an old mining district in Kern County. Like many other operations, it's using relatively new technology to go back and find gold that previous generations were unable to reach.
It costs the company roughly $280 per ounce of gold mined to run its operations, he said. With the price of gold recently falling below $300 per ounce, "it's just barely getting by for us."
Like a number of other companies, Glamis has raised money through stock offerings periodically. Two years ago it began financing a mine project in Imperial County with an offering of stock.
But that project is being held up by another impediment to the industry: environmental permits.
"You can spend half a million to a million dollars on all the environmental impact reports and filings," he said. "And many times companies are finding that with these kinds of costs the project just isn't worth doing."
Glamis' Imperial County project is also being targeted by the Sierra Club, which wants it stopped.
"There is a big problem with much of the project lying on Native American grounds," said Stan Haye, chairman of the Mining Committee for the Sierra Club of California/Nevada. "We're also concerned with potential water pollution. In general, we think the best use of the land would be to leave it alone."
Haye said the Sierra Club recognizes that mining sometimes is the best use for a particular land area. "We don't want to end all mining," he said. "We just want to make sure that the land is used properly, whether that be mining or not."
He said he's also concerned that the drop in gold prices will affect the mining industry's ability to clean up sites once companies have moved on. He says that if companies can't make enough to cover their expenses they won't be inclined to repair the land.
But many mines -- especially the larger ones -- counter that they won't be affected, at least not initially, by the drop in prices. Many already have sold the gold they're mining and processing now at prices of months or even years ago.
"That's the only reason we're processing that stockpile of ore," Homestake's Purtell said. "I don't know exactly how much those futures were sold for, but it's over $400 an ounce."
But for Homestake and the other mining companies in the state, the gold they've sold as futures won't last forever.
"What they're mining now they're getting a big price for because they've sold futures," said Susan Kohler-Antablin, associate geologist with the state's Division of Mines and Geology. "But eventually this will all catch up. Somewhere down the line, this drop in gold prices is really going to affect gold production in California."
Kohler-Antablin, an expert on non-fuel mineral production, said she expects some of the mine businesses won't survive the low prices once their reserves run dry. And that will have a domino effect, she said, because less production means less money, meaning less exploration.
She sees it happening already. "What I've been finding is that everybody is just putting off production, getting permits, and exploration. They're just not really enthusiastic about it right now."
Many mine operators say they're holding back on investing in more exploration until prices go back up. Original 16 to One's Miller is an exception.
Miller said the key to saving gold mining in California is technology. "We have to develop more efficient ways to find gold. For example, right now we're working with radar to locate veins of gold. And what the industry has to do is find the capital to fund this type of research."
Several years ago, his mine became the first to use metal detectors to make a major gold find. And advancements also are being sought in the processing of ore.
But for Miller and others, the new technology can't come fast enough. "It's clear that we have to make some progress," he said. "It's a damn tough business, and if we don't change we're dead."