Golden Sunlight cutback mirrors global gold trend – The Missoulian

A worldwide slowdown in gold mining investments might hit Montana harder than other states and could halt projects under development.

It likely contributed to the announcement last week that Golden Sunlight Mine near Whitehall, the state’s only active gold mine, would close its open-pit operations and lay off 140 workers in November.

Commodity prices that surged upward since the early 2000s have fallen to five-year lows, driving many companies to reconsider years of investments that expanded global operations.

“Companies built new mines and expanded capacity as if the commodity boom would continue indefinitely just like the Alan Greenspan years when people argued the tech bubble could not burst. The recent steady decline in demand and prices has caught them by surprise,” said Luke Popovich, vice president of the National Mining Association. “Around the world, they are canceling projects they’ve sunk billions of dollars in just because they don’t see the return.”

Companies are closing mines where operating costs are now too high to be profitable. The chilling affect could extend to exploration and mines still seeking permits, such as Lucky Minerals’ controversial core drilling near Chico Hot Springs and the Butte Highlands underground mine that could open within a few months.

Montana’s reputation for conservation-driven permitting battles could mean some companies will focus investments in mining-friendly states like Arizona or Nevada, where the limited capital available during a downturn might yield faster returns.

“It’s a difficult environment now,” Montana Mining Association Director Tammy Johnson said, noting that metal prices across the board have plummeted.

“There used to be a bit more of a predictable path for gold,” the Whitehall resident said. “But that has suddenly changed.”

Gold usually is buffered from the sharpest declines by its cultural associations with wealth, spurring people and countries to buy it during recessions. 

“This time it’s not an exception,” said Patrick Barkey, economist and Director of the University of Montana’s Bureau of Business and Economic Research. “If I pull up the 10-year chart for all commodity prices and the 10-year chart for gold (on my computer screen) and I step back, they look pretty much the same.”

In the early 2000s, commodity prices climbed gently until global growth, particularly in Asia, spurred a steeper spike that pulled values higher and lasted longer than previous boom-and-bust cycles, hardly slowed by the 2008 economic recession. The average spot price of gold on the world market was $271 an ounce in 2001, $695 in 2007, and peaked at $1,669 in 2012, according to Kitco Metals. The average daily price so far this year is $1,180.

The fall has a number of contributing factors, experts said. Growth has slowed in Asia and remained stagnant in Europe, cooling demand. Countries like China took advantage of high prices to sell off some gold inventory, flooding the market as companies also opened more mines. 

Popovich and Laura Skaer, executive director of the Spokane-based American Exploration and Mining Association, said the United States could be at a disadvantage as prices fall because of a push from activists for more mining regulations that drive up operating costs and drag out permitting compared to similar projects overseas.

The Greater Yellowstone Coalition, which is fighting the exploration of Emigrant Peak in Paradise Valley, said environmental protections and community monitoring ensure other industries aren’t damaged by mineral extraction.

“We need to be really strategic about which battles we take on and why,” Executive Director Caroline Byrd said. “Mining is crucial for our economic prosperity. But gold right now is not a strategically important mineral. We have plenty to meet our technological needs.”

She said the coalition has not reviewed the Butte Highlands project but opposes exploratory drilling for core samples by Vancouver-based Lucky Minerals on Emigrant Peak, saying that a mine in Paradise Valley could ruin the natural beauty and ecosystem of the region, which also would harm the thriving tourism industry.

The Highlands range, by comparison, has been extensively mined over the years, and the underground Highlands mine has a much smaller environmental footprint than would an open-pit mine in the Paradise Valley.

Earlier this year, the Montana Environmental Information Center sued Golden Sunlight Mine and the Montana Department of Environmental Quality to block an expansion of the open-pit mine that they contended should require backfilling rather than being left open once closed. Jefferson County District Court Judge Loren Tucker ruled in February against the conservation group, which has appealed the decision to the state supreme court.

County officials, who decided to intervene in the case, celebrated the district court ruling in part because of the mine’s significant role as a local taxpayer and employer.

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Golden Sunlight Mine opened in 1982, when gold sold for $372 an ounce, and remained open during the price slide of the 1990s while many others closed. Local mine managers say the announced layoffs are the result of having mined the easiest-to-reach ore. Along with safety concerns about how to work what remains, falling gold prices and debt service might have also contributed to the decision.

A spokesperson for Barrick Gold Corporation, the Toronto-based company that owns Golden Sunlight, did not return a request for comment.

A small underground mine at Golden Sunlight will remain in operation, and local managers have said it’s possible they could continue processing ore hauled in from other mines.

The only other Montana gold mine that might operate within the next year is the Butte Highlands Joint Venture, whose operators have previously said they will contract for milling.

Representatives of Timberline Resources and Highland Mining could not be reached for comment about a possible contract with Golden Sunlight or whether falling gold prices have spurred discussions about whether to continue the project.

On its website, Timberline Resources says it “expects the project to have robust economics at gold prices well below $1,000 an ounce.”

Prices rose 71 percent after the joint venture was formed in 2009 but could again slip back to that level within a year. It is unclear how low prices will drop and what minimum price Butte Highlands would need to operate.

It’s too early to tell whether Lucky Minerals’ exploration near Chico Hot Springs will reveal any veins worth mining, but Vice President Shaun Dykes said even the current economic climate hasn’t put a damper on the speculative project. 

Acknowledging that many companies have a different philosophy, Dykes said Lucky Minerals believes that economic slowdowns are ideal for exploration. If the gamble works, he said it gives them a jump start on permitting in the hopes that prices will have recovered by the time a mine actually opens.

“It’s high-risk, but it’s high-reward,” he said.