Gold’s decline pinches smaller miners
August 19, 2013
What a difference a few months can make.
Mining companies with operations in Northeastern Nevada started the year flush with cash after riding a years-long wave of high gold prices — just south of $1,700 an ounce to start the new year. Six months later, gold dipped to under $1,200 an ounce, though it recently rebounded slightly and was trading above $1,300 an ounce last week.
The dwindling price of gold — it peaked at $1,923 an ounce in September of 2011 — has curtailed the operations and expansion plans of several mid-sized mining companies with sizeable operations in the state. Nevada's largest gold miners, having shed tens of millions in market value as their stock prices went into a free fall, also have implemented sweeping cost-cutting measures and curtailed development of new mines to hedge against gold's bear run.
Make no mistake: Mining still is going strong in northeastern Nevada; however, the changes in the commodities markets have exacted a heavy toll on smaller firms.
Among the casualties:
• Great Basin Gold, which operated the Hollister Mine near Midas and Esmeralda mill near Hawthorne, filed for Chapter 11 bankruptcy protection in late February. The mine had been producing roughly 80,000 ounces of gold per year since 2008. Waterton Global Resource Management purchased the assets of Great Basin Gold in late May for $15 million and 15 percent royalty on gold mined at the property 50 miles northwest of Elko.
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• Gryphon Gold of Carson City, which was leaching previously mined ores at its small Borealis project in Mineral County, also filed Chapter 11 at the end of July after surrendering most of its interest in the project to its primary lender, Waterton Global Value. Waterton had taken a 60-percent interest in Gryphon's subsidiary, Borealis Mining Company, in January in exchange for a $1 million reduction in monthly payments of Gryphon's credit line.
• Atna Resources of Colorado, which had been mining and expanding operations at its Pinson mine in Humboldt County, suspended mining operations in June as costs became prohibitive at lower gold prices. Atna purchased the mine from Barrick Gold Corporation in 2011 for $15 million, 15 million shares of Atna common stock and 10-percent royalty on gold mined at the site.
Mid-sized and small gold producers aren't the only victims of gold's diminishing value. Reno-based Allied Nevada Gold Corporation, which operates the Hycroft mine near Winnemucca, is reconsidering plans to build a mill at the $1 billion mine-expansion project. Allied Nevada already has invested upwards of $90 million developing the mill. The company headquartered in South Meadows started the year trading at $30 a share on the NASDAQ; last week Allied Nevada's stock closed under $4, and the company is scaling back its workforce in Winnemucca by about 125 positions.
The state's two largest gold miners, Barrick and Newmont Mining Corp., have taken their lumps as well. Barrick began the year with its stock trading on the Big Board at $30 a share; last week it was at $18, and the company based at Toronto had an $8 billion write down of its global assets in the second quarter. Newmont opened the year trading on the New York Exchange at just under $47 a share; last week it was at $31 and also took a $1.7 billion write down of assets in Australia. Both firms also announced corporate layoffs that affect headquarters and rural Nevada administrative staff.
Though Barrick and Newmont, which employ thousands of miners each in Nevada across multiple sites, are in a much stronger financial position than smaller firms — combined the companies have a market capitalization of $34.65 billion — they aren't immune to the effects of a bear market.
Omar Jabara, group executive of corporate communications for Newmont, says the company began reigning in operating and administrative costs last year, as well as reducing development and exploration capital. As a result, all-in costs, or the total cost to produce and ounce of gold, dropped 10 percent year-over-year in the second quarter, and year-to-date spending has been cut by $362 million, while year-to-date capital expenditures are down 29 percent.
Newmont in the second quarter produced 383,000 ounces of gold at its Nevada mines at an all-in cost of $975 for the quarter.
"Mining is a long-term business, and we make decisions with that in mind and not necessarily based on the day-to-day fluctuations in metal prices," Jabara says. "Rising costs across our 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."
Leslie Maple, communications specialist with Barrick, says its Nevada layoffs represent less than 1 percent of its total workforce of 4,500 in the state. The last time Barrick announced layoffs was in the 1990s, Maple adds.
"We have been proactively taking steps to better position the company for success in this changing business environment," she says. "These steps include aggressive cost management and portfolio optimization. Cutting costs has meant we've had to make difficult decisions.
"The company has no plans to build new mines but will focus on optimizing existing mine plans. North America sites, including those in Nevada, remain the most productive in Barrick's portfolio, and we are working to keep it that way and will remain committed to our focus on cost controls and our new disciplined capital allocation strategy."