New book examines the war against gold

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By BILL O'DRISCOLL
Reno (Nevada) Gazette-Journal
April 20, 2002

ELKO -- The economic aftershocks could be
ebbing in this epicenter of Nevada mining.
After several years of plummeting prices, the
gold market is showing signs of strength and
stability at $300 an ounce, up more than $25
since last fall.

"Twenty-five dollars makes a big difference.
It's job security for us," said Bill Smith, a
mechanic at Newmont's Carlin operation about
30 miles west of Elko.

In a region where three-fourths of all jobs
are in some way connected to the gold mines,
that's welcome news amid falling student
enrollments and rising unemployment.

It also widens Elko's collective smile from
last week's celebration of the 50 millionth
ounce of gold produced in the Carlin Trend, a
gold-soaked stretch of earth in Elko and
Eureka counties west of here.

The double dose of good tidings has helped to
reboot the psyche in northeastern Nevada.

"I think we've hit bottom," said Kevin
Melcher, director of instruction for the Elko
County School District.

In 1998, the district's official count
tallied 10,444 students. Last September, the
count was 9,847. So Melcher has seen first-
hand what low gold prices can do.

The landscape is vastly different than when
he arrived from Reno in 1980. Then, gold was
going for $700 or more an ounce, mines
churned it out as fast as they could and
schools scurried to find room for a
burgeoning enrollment.

Today, Melcher senses a turnaround.

"The feeling I have is for growth to pick up
in the next couple of years, but not like the
mid-'80s," he said.

First, though, pain lies ahead. Elko has
approved a property tax increase and eight
city employees have been laid off.

Mayor Mike Franzoia insists the changes are
tied to the post-Sept. 11 economic downturn,
which has hit Nevada in falling tax revenues.

It shows at Bodily Furniture, where owner Ed
Gillins has watched sales drop 12 percent
from their 1996 peak. And it shows on the
county's multiple listing service, where 480
dwellings are up for sale, the most Realtor
Dee Pruitt has seen in years.

But Pruitt, too, sees hope emerging.

"It's picked up somewhat in the last 30
days," he said. "I think it'll slowly get
better."

Franzoia agrees.

"There's a thread of optimism," he said.
"Mines are so much more efficient now. It's
prepared them well for the next growth
period."

At Newmont Mining Corp., the state's largest
operation and the biggest name on the Carlin
Trend, staffing has fallen from 4,000 in 1997
to 2,800 today.

Some losses are linked to layoffs,
particularly in 1998, but others stem from
increased automation and technology, said Lee
Krugerud, Newmont vice president of North
American operations.

He said 1999 and 2000 were tough years.

"People wondered where the bottom was," he
said. "Behaviors have changed, but we'll be
very methodical going forward even with a
continued ramp-up in gold prices."

Tough times also meant consolidation.

Newmont recently completed its acquisition of
Australia's Normandy Mining Ltd., making
Newmont the world's biggest gold producer.

And Barrick Gold, Nevada's No. 2 producer,
has bought Homestake Mining Co., giving
Barrick ownership of all or part of five
mines in Nevada -- including the Goldstrike
property on the Carlin Trend.

"With consolidation, this is one strength
that will distinguish companies and their
ability to grow, explore and continue making
a contribution to Nevada's development," said
Barrick Vice President Vince Borg.

The rise in gold prices can be traced in part
to a surge in Japanese imports as people lost
faith in that nation's banking system, said
John Dobra, economist at the University of
Nevada in Reno.

Add in terrorism-induced uncertainty
worldwide, and people are drawn toward gold,
Dobra believes.

"It's the ultimate currency -- that's probably
what's driving it," he said.

Still, mining companies should not expect to
see the breathtakingly high prices of the
1980s, Dobra cautioned.

"That was a real anomaly," he said. "I would
expect a long run at holding its value at
what it is now."

That's all right by the mines as they move
forward into the next 50 million ounces of
gold in the Carlin Trend.

Newmont's operational costs, from digging ore
to pouring gold, have dropped from $232 an
ounce in 1996 to an estimated $213 this year,
Krugerud said.

But Newmont pays $65 million a year for
electricity, he said, so it is considering
funding -- or helping to fund -- a new power
plant off the Sierra Pacific Power Co. grid.

"We're trying to protect ourselves from the
volatility of costs," Krugerud said.

Other signs point to a brighter future.

On Thursday, the state reported the Elko
region's jobless rate fell in March to 6
percent from 6.3 percent a month earlier.

Borg said Barrick's Goldstrike property has
more than 20 million ounces of gold in
reserves.

That's what Elko wants to hear.

The county has grown to more than 45,000
residents, and mining, with an average salary
of $58,000, is the state's the highest-paying
job sector.

Melcher points to the positive in the past
year: a new airport, a new hospital and $4.5
million in improvements to Great Basin
College.

"That has put Elko into a position to be
poised to take off with the next wave of
growth," he said. "We've seen both ends of
the swing."