Nevada isn’t called the “Silver State” because of the color of its ubiquitous sagebrush but because its statehood was purchased with silver mined in the famous Comstock Lode, discovered in 1859. Nevada became a state in 1864 partly because the federal government realized that the area’s great mineral wealth could aid the Union cause.
Since then, mining’s impact on Nevada’s economy has remained immense, through good times and bad. In early decades, mining and ranching were the mainstays of the state economy, but when the federal government limited the role of silver in the monetary system in the 1870s, silver prices declined, many mines closed and many thriving mining towns dried up and blew away. Mining returned to save the day at the beginning of the 20th century. Rich silver deposits were discovered at Tonopah, major copper deposits were found near Ely and a major gold strike at Goldfields brought fortune seekers by the thousands.
The latest and greatest booms in the 1980s brought the development of large-scale gold mining operations in central, northern and eastern regions of the state. This most recent renaissance was fueled by an $850-per-ounceounce gold price in 1980, a price that inspired technological advances and made possible the mining of dispersed, ultra-fine ore in grades so low that mining had previously been unimaginable.
Strangely, from the beginning of the rush, gold entered a bear market, the price falling to as low as $250. It sits at about $271 at this writing. Bear market or not, since 1980, investment to the tune of more than $11 billion, coupled with technological advances in the industry, have raised Nevada to the third-largest gold producer in the world, just behind South Africa and Australia. In 1999, the last year for which figures are available, Nevada mines produced 8.26 million ounces of gold — 76 percent of U.S. production and just over 11 percent of world production. Historically, investment in Nevada mines has come from U.S. companies, but increasingly, the state’s industry has attracted investment from around the world, most noticeably from Canadian companies.
According to the Nevada Mining Association, the industry has a “large, efficient and economically viable capital base that is fundamentally sound and sustainable for years.” However, low gold prices have the mining industry in Nevada facing hard times. Although anxious to put a good spin on mining news, the association will be the first to admit its members face some challenges — technological, economic and regulatory — that could have disastrous long-term effects on the industry.
In some parts of Nevada, the economic effects of those challenges have already been painfully felt. In the middle of Nevada’s gold country sits Humboldt County. Winnemucca, the county seat, has a history of economic boom and bust. Agriculture and tourism respectively have supported the core population of the community, but mining has always been an important factor.
During the 1980s gold boom, Humboldt County was blessed with seven major gold mines and nearby Pershing and Lander Counties added about five more, all close enough for many of the employees to make Winnemucca home. At first, the equipment operators who serve as miners in open pit mines were imported by the contracting companies to construct, the pits, the gigantic leach fields and mill houses. In time, locals also found high-paying jobs in the expanding industry.
The population swelled. Net-proceeds taxes paid by mines to the county, an increase in sales tax, room tax and property tax paid for new school buildings, a greatly improved hospital and several traffic lights made necessary by the phenomenal growth. Life was very good in Winnemucca. There were those who foresaw an end to the prosperity, who realized that someday the gold would all be mined, and who urged the town to diversify its economy before mining left it high and dry. But the community wasn’t willing to spend much money on such an effort, and nothing came of it.
Meanwhile, the bear market was conspiring against Winnemucca, as well as other Nevada towns that had come to depend on mine proceeds. Beatty, Battle Mountain, Ely, Eureka and — to a lesser extent — Elko, would also take a tremendous blow, when gold prices finally fell so far that mining could no longer continue at its former feverish pace.
That began to happen in late1996, a year in which Nevada mines set a production record of 7,007,469 ounces. By 1998, gold was selling for $294, the lowest price since1972 in inflation-adjusted terms. In mid 1999, the Bank of England announced it would sell the majority of its gold holdings, the price dove to around $250.
To remain viable, mines had to increase efficiency. In some cases, no available technology or strategy could make mining the low-grade gold deposits economical. These mines laid off their crews and waited in hope that better prices will some day bring them back on line. Mines with higher grades of ore found they could continue to produce, but only with greatly reduced staffs and by mining only the best ore on the property. In 1996, mining directly employed 14,000 people in Nevada. At the end of 1999, less than 12,000 miners still held their jobs. Twelve hundred of those who lost jobs were in Humboldt and Lander Counties, with the majority of those coming from Winnemucca. School enrollment in Humboldt County fell from 4,024 in the 1997-1998 school year to 3,694 today, a drop of over 8 percent.
Another impact of low gold prices has been significant consolidation of producers through mergers and acquisitions. Russ Fields, president of the Nevada Mining Association, called the mergers “a normal response to a low price environment…as companies seek synergies from combinations.” He said, “This allows the industry as a whole to cut overhead costs, more fully utilize capital and become more efficient.”
To further cloud the future of Nevada mining, a new regulation concerning mining on public lands was enacted as a parting shot by the Clinton administration. Fields and other Nevadans (Attorney General Frankie Sue Del Papa among them) take exception to the Surface Management Regulations for Hard Mining (sec.3809) because the regulation was made effective without giving the public a chance to comment on “provisions that lead to unacceptable uncertainties to mining companies investing in the United States” and, in particular, Nevada.
In a nutshell, Section 3809 allows government officials to shut down a mining operation at any point if, in their opinion, the operation would cause “substantial irreparable harm” to public lands. Del Papa and the mining industry object to the phrase because it is too vague and subject to abuse. Fields calls the phrase “the most egregious” from a large company’s standpoint because it allows an operation to be stopped on a whim, at any point, regardless of the investment the mining company has made.
John Dobro, director of the Natural Resource Industry Institute at the University of Nevada, Reno, wrote that adoption of Section 3809 can be “expected to result in devastating economic harm to the U.S. precious metals industry” which, he noted, is centered in Nevada and dependent on access to public lands. Estimates produced by the BLM, which authored the regulation, forecast that the new law will cost Nevada roughly $351 million in mine production, as well as 3,220 jobs. Nevada citizens will lose between $83 million and $249 million in total personal income.
A light at the end of the tunnel?
Although a gloomy picture has been painted of the future of the U.S. mining industry, there is reason for hope. Fields said he expects Section 3809 to be suspended and re-examined under the Bush administration and its new secretary of the interior, Gail Norton. He said the association expects revised regulations in mid-July that will not have such a negative impact on exploration.
Gold prices, Fields noted, seem to be rebounding of late. He attributes this to an expanding market, which is now absorbing gold being sold off by European banks in addition to new bullion from Nevada’s mines. Demand, he said, was up 4 percent in the first quarter of 2001 over the first quarter of 2000. The demand for jewelry is remaining strong, and gold is gaining new uses in electronics and medicine. The noble metal has “properties critical to new technologies,” said Fields. Meanwhile, residents of Nevada’s mining communities are investigating ways to diversify their economies while they wait for the next boom cycle.
Minerals Produced in Nevada and Some of Their Uses:
BARITE
drilling muds; manufacture of rubber; bowling balls; medical purposes
CLAYS
ceramics; nutritional additives; concrete; mortar
COPPER
electric cables and wires; switches, plumbing, heating; roofing and building construction; chemical and pharmaceutical machinery; alloys (brass, bronze); cooking utensils
DIATOMITE
filters; absorbents; cat litter
DOLOMITE
nutritional additives; building stone
GOLD
dentistry and medicine; scientific and electronic instruments (computers, telephones, vehicle airbags, cameras, televisions, video cassette recorders, compact discs); as an electrolyte in the electroplating industry; jewelry and arts; medallions and coins; ingots as a store of value
GYPSUM
prefabricated wall board; industrial or building plaster; cement manufacturing; agriculture
LEAD
lead batteries; gasoline additives; solders, seals and bearings; TV tubes; TV glass; construction; communications; protective coatings; ceramics and crystal glass; tubes or containers; type metal or foil; X-ray and gamma radiation shielding; soundproofing material in construction; ammunition
LIMESTONE
concrete aggregate; lime – the chief raw ingredient in cement; fertilizer and soil conditioner; a flux in the melting of iron; paints; plastics; livestock feed as a source of calcium
LITHIUM
ceramics; glass; in primary aluminum production; in the manufacture of lubricants and greases; rocket propellants; vitamin A synthesis; silver solders; underwater buoyancy devices; batteries
MAGNESITE
in the chemical industry; refractory materials
MOLYBDENUM
in alloy steels to make automotive parts, construction equipment, gas transmission pipes, stainless steels for water distribution systems, food handling equipment, chemical processing equipment, home, hospital and laboratory requirements; tool steels, bearings, dies, machining components; cast iron steel mill rolls, auto parts, crusher parts; lubricants as catalysts, paint pigments, corrosion inhibitors, smoke and flame retardant, dry lubricants.
PERLITE
soil conditioner
PETROLEUM
diesel, kerosene, stove oil and asphalt
SALT
road de-icing
SAND & GRAVEL
concrete; bricks; roads
SILICA
glass (Nevada’s is mainly used in bottles and jars).
SILVER
photography; chemistry, electronics; currency; alloy; lining vats and other equipment for chemical reaction vessels and water distillation; jewelry; catalyst in manufacture of ethylene; mirrors; electric conductors; batteries; silver plating; table cutlery; dental, medical and scientific equipment; electrical contacts; bearing metal; magnet windings; brazing alloys, solder SULFUR
in manufacture of sulfuric acid, fertilizers, chemicals, explosives, dyestuffs, petroleum refining; vulcanization of rubber; fungicides
TUNGSTEN
metalworking; construction and electrical machinery and equipment; transportation equipment; as filament in light bulbs; as a carbide in drilling equipment; in heat and radiation shielding; textile dyes, enamels, paints and for coloring glass
ZINC
as protective coating on steel; die casting; as an alloying metal with copper to make brass; in rubber and paints; electroplating; metal spraying; automotive parts; electrical fuses; anodes; dry cell batteries; fungicides; nutrition; chemicals; roof gutters; engravers’ plates; cable wrappings; organ pipes; in pennies; and in additives to lubricating oils and greases. Zinc oxides: in medicine, in paints, as an activator and accelerator in vulcanizing rubber; as an electrostatic and photoconductive agent in photocopying
