August 2010

Economic Geology

Nevada-type gold deposits (Part 2)

By R. J. Cathro

“(Carlin) would prove to be a monumental discovery of profound importance to Newmont and, furthermore, it would lead to a revival of the long dormant gold mining industry in Nevada.”

~ Kaufman, 1992

Although the Mercur Mine, situated in Utah about 300 kilometres east of Carlin, Nevada, began production in 1898 and is a Nevada-type disseminated gold deposit, it is not recognized as the first discovery of its type. The reason is that geologists did not realize it was a distinct deposit type until 1968 (Cathro, 2010).

Although several small examples of the family had been discovered in Nevada much earlier in the 20th century, first prize goes to the Carlin deposit, which was discovered in 1961 by John Livermore and Alan Coope of Newmont Mining Company. Not only did they have the vision to imagine, from a study of the published literature, that this gold deposit model must exist, they proved it by finding a commercial example. At the time of the discovery, Newmont had virtually no competition for gold exploration in Nevada because the price was fixed too low to make exploration attractive. Moreover, everyone thought that the early prospectors had found all the gold that occurred at surface using gold pans and shovels, and none of the known discoveries were of commercial size or grade.

This deposit type is most accurately described with the unwieldy name “sediment-hosted disseminated gold,” and locally called “Carlin-type.” However, it is referred to in this series as “Nevada-type” because Carlin is too site-specific. In actual fact, most of the deposits of this type that have been discovered display important differences to Carlin and to each other. In the early days, they were also called “noseums,” or invisible gold, deposits because the gold was literally invisible in both fresh and weathered specimens. The flakes were so fine that they floated in running water, could not be concentrated in a gold pan, and did not congregate in placer deposits.

The Carlin discovery demonstrates how far the science has advanced in the last 50 years and ranks as one of the greatest accomplishments in modern economic geology. Who would have predicted that a previously unrecognized deposit model, particularly of an ancient and valuable metal like gold, could quickly result in one of the world’s best gold districts? Unlike the world-class mines that have been the main focus of this series until now, Carlin was not an obvious target that an experienced prospector could recognize and envisage becoming a mine once someone could solve the transportation problems and raise the necessary development capital. Between the start of production at the Carlin Mine in 1965 and the end of 2008, Nevada-type deposits produced a cumulative total of 5,077 tonnes (157.9 million troy ounces) of gold (Price, 2009). This amounts to 3.2 per cent of total world production of 159,000 tonnes (5.1 billion ounces) since the beginning of civilization (U.S. Geological Survey estimate).

Newmont, a name created by a combination of New York and Montana, is a major American mining company with a long and proud history. It was the creation of William Boyce Thompson (1869-1930), one of the most successful mining investors, executives and promoters of his generation. Thompson was born in Montana and raised in Butte, then briefly attended Columbia College of Mines in New York before heading for Wall Street. His first big breaks were participating in the initial financing of Bingham Canyon by Utah Copper Company and then brokering the 1906 deal in which the Guggenheims acquired control of the Nevada Consolidated (Ruth) porphyry deposit at Ely, Nevada. Recognizing the importance of professional advisers, he initially relied on mining engineer Henry Krumb and geologist George Gunn to identify outstanding opportunities. In the next few years, he used his financing skill to either gain control or acquire an interest in two other major porphyry copper deposits in Arizona — Inspiration at Globe and Magma at Superior. That was just the start of an incredible string of huge mining financings that built the basis of his personal fortune and became the foundation of Newmont.

In 1916, he helped the Guggenheims finance the rich copper-silver deposit at Kennicott, Alaska, and consolidate it with their interests in the Bingham Canyon, Ruth, Ray and Braden (Chile) mines to form Kennecott Copper. After 1925, Fred Searls Jr. became his chief geologist. Between 1920 and 1928, Thompson helped finance Hudson Bay Mining at Flin Flon, Manitoba, which began production in 1930. In 1928, as well, Newmont joined American Metal Company in forming South African Copper Company, which acquired the O’okiep ore body in South Africa. Thompson was also involved in the founding of Texas Gulf Sulphur, Anglo American Corp. and Rhodesian Anglo American Ltd. According to Wikipedia (2010), Thompson was also a director of the Metropolitan Life Insurance Company and the Federal Reserve Bank of New York.

In 1916, Thompson formed a private holding company, Newmont Company, to hold his growing portfolio of investments and corporate holdings. As his fortune continued to expand in the booming war years, he changed the name to Newmont Corporation and converted it into a public company in 1921. The name was changed again to Newmont Mining Company in 1925. According to Wikipedia (2010), Newmont earned $32 per share in 1927 and was soon the third largest mining company in the world, after De Beers and Anglo American Corp.

As his health began to decline rapidly during the late 1920s, Thompson decided to dispose of his stock holdings. Whether it was another example of the astute judgement that marked his career or just plain luck, most of his selling had been completed before the stock market collapse in November 1929, six months before his death. Newmont, which was now being managed by an executive committee and a blue-chip board, was not so fortunate. Like most companies listed on Wall Street and elsewhere, Newmont’s stock price was decimated, from a 1929 peak of $236 to $3.87 in 1932.

The history of the company consists of three distinct periods: 1) the growth of a major mining company under Thompson until the stock market collapse; 2) surviving the Great Depression and becoming a large copper producer during the post-war period; and 3) becoming a world-class gold producer since the Carlin discovery. In a way, the third stage is the end of a long and winding route that began with a decision that was made just before Thompson died and that he was not keen about. That was the 1929 purchase of a 51 per cent interest, for less than $500,000, in the two best gold mines in the California Motherlode camp, Empire and North Star (Cathro, 2008).

The two adjoining mines were merged into a new company named Empire Star Mines. The deal was negotiated by Fred Searls against the advice of his associates, who were concerned because of the difficult economics of gold mining at a time when the gold price was fixed at $20.67 per ounce. Raised in Nevada City, in the heart of the Motherlode, he had been watching for opportunities there since joining Newmont.

Fortune smiled on the company in February 1934 when U.S. President Franklin Roosevelt persuaded Congress to increase the gold price to $35.00. This certainly was not done to help struggling mining companies; it was the final step in a desperate strategy that began a year earlier, immediately after his inauguration. The United States was on the gold standard, under which both banks and the government guaranteed to redeem their notes and deposit liabilities at the rate of $20.67 per ounce of gold. The United Kingdom had abandoned the gold standard in September 1931, near the start of the Depression. The U.S. was forced to do the same when a banking crisis developed just as President Herbert Hoover’s term was ending. Both foreign and domestic depositors and note-holders were rushing to cash in their dollars for gold, which resulted in a run on U.S. banks. The fear was that a large number of banks would fail because there was insufficient gold to cover demand and the U.S. gold reserves would be depleted. Speculation that the U.S. might end the gold standard made the crisis worse as people rushed to obtain gold while they could. To solve the problem, the gold standard had to be abandoned quickly. Roosevelt took office on March 4, 1933, and the process began three days later.

New laws were passed quickly to give the federal government the right to purchase all the gold in private hands at the old price and become the sole owner of gold in the U.S. At the beginning of February 1934, the U.S. established a new gold price of $35.00. This stabilized the banking system by creating a large inflow of gold into the country from elsewhere because of the fixed, higher price. The Treasury made a huge profit (almost $3 billion) because it had bought gold at $20.67 prior to its revaluation to $35.00. Next, the U.S. readopted a limited form of the gold standard. From January 31, 1934, to August 15, 1971, the Treasury purchased gold from all sellers at $34.9125, but sold gold only to foreign monetary authorities and licensed industrial users at $36.0875.

By 1934, Empire Star was operating five mines in the Grass Valley-Nevada City district. As the Depression began to bite deeper and base metal prices crumbled, and in spite of intensive cost-cutting, Newmont was still in a shaky financial position. When the price jumped in February, the value of its annual gold output immediately jumped 75 per cent to $3.5 million, and Newmont’s dividend income rose 630 per cent to $1.1 million in 1934. By additional borrowing and judicial trading in the stock market, Newmont was able to increase the market value of its portfolio from about $9 million in 1932 to nearly $30 million in 1934. Through serendipity, Empire Star had become the crucial support that enabled Newmont to survive the Depression and enlarge its gold exploration budget. It was also the first step in Newmont’s emergence as an important gold company and the long road to the Carlin Mine.

Searls accelerated his search for other gold opportunities and Newmont was operating 12 gold mines in North America by 1939 (Wikipedia), including five in the Motherlode district and six in Canada. They were all small- to medium-sized underground deposits. In 1934, Newmont acquired control of two medium-sized Canadian gold deposits, the Island Mountain Mine at Wells, British Columbia and the Northern Empire Mine in the Beardmore-Geraldton camp, Ontario.

Newmont became interested in Island Mountain, located in the heart of the famous Cariboo Gold Rush, after a pyritic gold deposit was discovered in 1932, and operated it until 1954. Production while under Newmont ownership was about 10,380 kg (334,000 oz) of gold and 1,500 kg (48,140 oz) of silver from seven million tonnes of ore at a recovered grade of 14.8 g/t (0.43 oz/ton) gold and 2.1 g/t (0.06 oz/ton) silver (Henceforth, tonne = t and all grades are recovered, not reserve).

The Northern Empire Mine was operated by Newmont until 1942 and produced about 4,640 kg (149,000 oz) of gold from 426,000 tons, a grade of 12.0 g/t (0.35 oz/ton). In 1937, Northern Empire bought control of the nearby Magnet Mine, which produced from 1938 to 1942 and again from 1946 to 1956, and Tombill Mine (1938 to 1942). Production was 4,890 kg (152,000 oz) of gold from 326,500 tonnes at a grade of 14.4 g/t (0.42 oz/ton) from Magnet, and 1,870 kg (60,100 oz) from 172,900 tonnes averaging 12.3 g/t (0.36 oz/ton) from Tombill.

In 1935, Newmont entered into a partnership with prominent financier Bernard Baruch to acquire the Getchell Mine in Nevada from a Nevada banker, Noble Getchell. They built a 900 t/d cyanide plant to process oxide ore averaging about 12.0 g/t (0.35 oz/ton), which was quite profitable until the underlying sulphide ore was encountered. It was an unrecognized noseum gold deposit.

Newmont continued its investment in new Canadian gold deposits in 1935 when it acquired the Berens River property in Ontario, which produced 5,060 kg (157,350 oz) of gold from 508,500 tonnes of ore between 1936 and 1948, at a grade of 9.6 g/t (0.28 oz/ton). The mine was so far north of the Red Lake gold camp that building a road was impractical and all equipment and supplies had to be flown to the site.

The last of the Canadian deposits acquired by Newmont was the Sachigo River Mine, situated in an even more remote part of northwestern Ontario. It was discovered in 1935 by geologist Eldon Brown and produced 1,635 kg (52,500 oz) from 42,200 t grading 38.7 g/t (1.13 oz/ton) between 1938 and 1942. It is interesting that Brown later became the president of Sherritt Gordon Mines Ltd., which opened a small nickel mine at Lynn Lake, Manitoba, in 1952 using a new ammonia leach hydrometallurgical process. Newmont financed the new process and acquired a 40 per cent interest in the company.

Except where indicated, information on Newmont is from R.H. Ramsey (1973). L.H. Officer (2004) is the source of information on the banking crisis and abandonment of the gold standard in 1933-34. Special thanks go to Don Sweetkind and Mike Cathro for preparing the Nevada
location map.

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