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Gold Continues To Fluctuate In Use And Value

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With the onset of the Second World War, government control was once again exercised to regulate metal prices throughout the war period. After the war, which had been even more destructive than the Great War of 1914-1918, temporary supply shortages as a result of increased demand from war recovery programmes and other civil activity raised metal prices. The supply squeeze was unaffected by recycling activity.

But the expected subsequent slump in prices did not occur as Cold War activities ranging from arms manufacturing to directed massive aid programmes, created a demand for metals and prices inflated.

During the same period, worldwide activity in terms of ‘social planning’ was evident, from Entitlements, through the various guises of the Welfare State, to the centrally planned economic system of the Soviet Republic. Government ‘leadership’ through state-owned enterprises and other subsidy-supported activities was an integral part of these programmes, providing a sympathetic ideology to combine with decolonisation actions, leading to nationalisations and other protective programmes. This created a heavy demand for products, and the massive, debt financed investments involved obscured the price-levelling effects of business cycles.

Long term gold comex chart.

Long term gold comex chart.

The build up of prices in the 70s was in no small measure due to speculation, resulting from the abandonment of the gold standard and a general mistrust of credit currency in the light of runaway inflation. Metal prices were bolstered further towards the latter part of the decade by unrest in various parts of the world leading up to the invasion of Afghanistan and the second oil crisis.

A 35% slump in metal prices during the 1980s, while being a part of the long postponed adjustment within the recession of 1980/83, was exacerbated by state owned enterprises. A number of state controlled mines had been coming on stream over previous years and governments maintained production levels, in spite of decreasing demand, to obtain foreign exchange. Also, the second oil cartel crisis was further lowering demand for metals due to the general heist in costs.

Institutional influences

Metallic institutions had also played their part, in a more direct manner. A measurable part of the metal price rise seen during the period leading up to the 80s was due to various efforts at market regulation by representative organisations, largely backed or indirectly countenanced by various governments. While these efforts were fairly widespread, three of the metal associations experienced particularly noteworthy effects from their market intervention.

The price of aluminium suffered a major downswing in 1973 while most metals were experiencing large increases in prices. Aluminium dropped substantially that year as the government members of the International Bauxite Association convened to fix prices. Lower cost non-members, private companies in a position to trade freely, as well as apparently some members meanwhile, all used the market to undercut this price, secured the business and created the dip in price.

Nickel producers, through a producer price mechanism, had helped defend themselves for a number of decades. The mild drop in price in 1978, due to a brief abandonment of the control mechanisms, gave warnings that were not heeded at an operational level. However, the establishment of LME quotes proceeded in 1979 and were formally accepted as a legitimate reflection of value in 1982. These actions, combined with the depths of the recession prevailing at the time, forced a large number of producers to either close or to implement cost-cutting initiatives. When demand finally began to increase through 1987 the excessive shortage of producers created the exaggerated price rise. Nickel prices are now back down to more reasonable levels, many operations having carried out long postponed productivity improvements.

The International Tin Council had been supporting prices through buffer stocks since the 1950s. However, increasing prices promoted substitution, turned buffer stocks into excessive supply and attracted new low-cost producers to enter the market who, particularly in new tin countries, brought in up-to-date technology. In the recession these new entrants were the principal survivors and by 1985 the price support system collapsed totally. Thus, in the space of just five years, a 160% increase in tin prices achieved over the previous twenty years had been totally wiped out, and prices are continuing to fall.

In 1987, a sharp rise in metal prices initially sparked fears of a repeat of the 70s when such a surge was followed by a major slump in prices as a result of speculation. As it turns out, this latest upturn in the cycle appears to have been largely market controlled. Metal prices peaked in 1979, fell by around 50% during the 1983 recession, peaked again in 1988/89 (albeit at a lower level than in 1979) and almost halved again by 1994. Indeed, prices may still be adjusting downwards in a reaction by the markets to real and expected improvements in operating costs.

Aluminium, silver and gold are shown in Figure 3, against the average development of the other five metals; their individual performance shows wider price variations for various reasons.

Aluminium, very much a metal of the 20th century, is a prime example of the application of technology to reduce production costs in order to gain market share. Most notably, these technological changes have happened with a speed and effect that has far overridden the inflationary effects of various government policies.

In the 1850s, aluminium was fetching precious metal prices, in the order of US$25,000/lb (in present day terms), although these were drastically reduced with the introduction of electric furnace processing. Meanwhile, the opening up of new trading areas around the globe permitted an exponential increase in demand which offset the lower price for the metal. The inauguration of the Grand Coulee hydroelectric system and the enormous consumption of aluminium in the fabrication of combat aeroplanes saw the US become the principal producer by 1942 at a further reduced price, that has held fairly steady till today.

Silver experienced a spectacular rise in 1980, to some 4 times its real term low in 1931. While this was partly attributed to a mistrust in credit currencies, the main reason for the rise is known to have been due to market manipulations. Once these manoeuvrings were discovered, prices quickly settled back to levels experienced before the incident and have continued to decrease over the long run.

Historically, since its demise as a formal currency medium, and in spite of its associations as a precious metal and protector of wealth, the general price trend for silver has been closely parallel to the base metal average and has been noticeably unreactive to crisis.

By the 1930s, the US had taken receipt of much of the world’s silver bullion against World War I expenses, as well as a considerable quantity of Chinese coinage. During World War II, shortages of base metals resulted in a boost for silver in terms of industrial uses in the US. Whilst these applications have grown worldwide, the fact that more than 30% of new silver comes as a by-product from various base metals weighs heavily with the market and prices have weakened accordingly, varying only under business cycle influence.

Gold peak

With gold becoming a fully traded commodity in 1973, refuge seekers from high inflation, ‘unprotected’ credit currencies and political unrest combined to cause an immediate and substantial price rise up to 1980. During this period, a number of mining companies turned ‘gold’ in order to benefit from the added value this commanded on the stock exchanges and to ease the difficulties in financing projects. However, the onset of the 1980/83 recession pulled gold (and other metal) prices down, since when it can be argued, in some general aspects, at least, that gold has been trading as a ‘normal’ commodity.

Of the estimated 116,000 t of gold produced over the centuries to date, more than one third has been produced in just the last 25 years and ore reserves continue to be established worldwide. New applications for gold in electronics, computers, satellites and new protective coatings have increased the industrial uses for the metal and the longer term diversification for industrial applications is likely to increase.

Since the price spike of 1980, gold has been noticeably unreactive to crisis situations and the price trend has begun to follow closely that of the composite for base metals. Considering that most civilisations over the millennia have independently found gold to be “noble”, it is more than probable that it will always carry an added value at any given time and continue to be an ultimate source of liquidity in a really major crisis. However, its strength as a long term protector of value is now debatable, as reflected by the actions of some central banks which collectively hold some 38% of the world’s gold stocks.

Government involvement in the market, whilst sometimes necessary under specific circumstances, always results in an artificial rise in metal prices (as is the immediate intention of cartels). In contrast, the market, when its powers are given free expression, brings prices down. In fact, the market is by far the stronger player being a reflection of society’s expectations – no matter what is being sold, the next time around everybody looks for better quality at a lower price, whether it be skate boards, microwave ovens or mineral sizers.

Metals are an integral part of everything and must make their contribution to satisfy these market constraints and, since it is impossible to improve on 100% pure metal, producers must focus on total operating costs or productivity. Technological development on all fronts is the major contributor to achieving this objective, and since mining companies continue to make reinvestible profits and maintain adequate supplies on a worldwide basis, it is being realised.

Productivity and Value

Improving productivity involves the application of the correct technology to achieve optimum economy in any aspect of a particular activity, whether this be in the areas of personnel, safety, communication, infrastructure, environment, mines or plants. Productivity is implicit in sustainable development, both requiring the optimum use of resources with the latter introducing the concept of total or real value to the cost of an action.

Reductions in energy consumption, reduction or better management of waste, the efficiency and cleanliness of operations as well as social impacts have been achieved over the decades for the basic economy imperative, or productivity; sustainable development and allied subjects became the next step in economic development. This is due entirely to in-place technology being able to define a problem, measure it and resolve it economically.

‘Economy of scale’ is a recurring theme for achieving greater productivity. Advances in this area include, to name but a few: the sophistication of low profile equipment units and 300 t trucks; semi-autogenous grinding and various new flotation techniques; biotechnology for copper, zinc, nickel, molybdenum, cobalt and silver recovery; instrumentation control giving greater efficiency in the use of energy; and alternative uses for and retreatment of tailings. On the social side greater safety, communications, transportation facilities and education are redefining and permitting greater independence and decentralisation of each individual property while providing head office a more precise and prompt overview as necessity demands. The single, smaller-sized mine, with employee families located in towns rather than capital cities, is rapidly becoming a sustainable economic scale.

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Detecting Gold: Not As Easy As You Might Think

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If only it was this simple.

If only it was this simple.

I have taken the liberty of simplifying and attempting to clarify the theoretical discussion in which Hudson explains that some noble metal compounds such as rhodium trichloride are actually oligomers containing as many as twelve atoms of rhodium connected by metal-metal bonds. After reduction, the metallic dusters can pass through a Millipore filter and escape detection. Gold atoms cannot be separated from one another; and, according to Hudson, “if you really think about it,” this is due to its electronic structure of 5[d.sup.10] 6[s.sup.1]. Nature, however, can produce monoatomic gold that comes up out of the earth. Hudson can produce monoatomic gold in another way, by thermal decomposition of AuH, which is called an “oride.”(3) It loses 4/9 of its weight in the process. This is due to the high-temperature superconductivity of monoatomic gold, which interacts with the magnetic field of the earth.

It would be understandable for anyone not well acquainted with the history of gold prospecting to think that Hudson’s ideas are uniquely bizarre, but, in fact, his main themes are like old familiar songs from a chorus of vanished prospectors.

The New Mexico Bureau of Mines and Mineral Resources is one of several government agencies in the United States dedicated to assisting mine owners, mining engineers, geologists, and prospectors in the economical recovery of minerals. Most of the background information for this article has been furnished by two of its staff members, Lynn Brandvold, Senior Chemist, and Robert Eveleth, Senior Mining Engineer. Over the years, the Bureau has received so many ore samples alleged to contain “non-assayable” gold – but which, when analyzed by the Bureau, gave only negative results – that a special information sheet has been prepared for distribution by the Bureau’s publication office. Titled “The Myth of Non-assayable, Non-recoverable Noble Metals,” it is drawn from the writings of Mel Jennings, metallurgist. A more complete treatment of myths and frauds in gold analysis has been presented by W. G. Bacon, G. W. Hawthorn, and G. W. Poling (CIM Bulletin, Canadian Mineral Processors Division, November 1989). These authors say, “We write this paper with emphasis on fire assay techniques, which are a well-recognized standard, or preconcentration technique in the hope that the industry will learn to recognize and then ignore fraudulent assayers. At present the prospect of seeing them out of business, or better yet behind bars, seems improbable.”

A unifying theme of anomalous-gold lore is that analysis by emission spectroscopy is more reliable than fire assaying. The basis for this belief is that a spectrum of ore that has not been concentrated shows such a multitude of lines that one or more of them will surely fall Within the limits of resolution of the wavelength of gold’s strongest emission line (280.219 nm). The MIT Wavelength Tables list seventy lines between 280.1 and 280.3 nm for metallic elements other than gold. Iron, which is almost always vastly more abundant than gold in an ore sample, has a line at 280.225 nm. Since prospecting for gold in a line spectrum is like looking for a needle in a haystack, and since straws look very much like needles, it is easy to find gold where it doesn’t exist.

Faith is often reposed in another kind of spectroscopy called atomic absorption (AA). A sample is dissolved in a powerful oxidizing solvent, diluted, and sprayed into a very hot flame or inductively coupled plasma. The vaporized atoms of the element being sought are illuminated by a lamp emitting radiation from that same element. Absorption of the radiation is thus specific for the element being sought and nonspecific for all others. The results of AA are very reliable when they are properly interpreted, but when the absorbance is low, as it almost always is for unconcentrated gold ore, the signal may be swamped by background noise. A low absorbance does not reveal the presence of the sought element unless particular attention is paid to the background, but gold fever has a way of turning off the critical faculties of exalted prospectors. Professional analysts know better than to misuse AA, but their clients may do it on their own.

A brief description of the fire assaying method may help you understand why a negative result should be the last word even though it often is not. A sample of ore is pulverized, parted, mixed with metallic lead and flux, and then heated in a crucible. Gold and other precious metals dissolve in the lead, and other minerals dissolve in the flux. The melt is poured in an iron mold where it separates into a slag (residue) and a lower layer of gold-containing lead. The lead is mechanically separated from the slag and placed in a porous ceramic container called a cupel. The lead is oxidized by heating it in air at 1,000 [degrees] C, and the lead oxide is absorbed in the cupel. Gold and other precious metals are left behind in the form of a bead, which does not soak into the cupel because it has a high surface tension and does not wet the surface. The recovered bead is weighed and treated with nitric acid to remove whatever silver may be present. The initial weight and final weight give the proportion of gold and silver. If other precious metals are present, they are usually analyzed spectroscopically.

When the fire assay of an ore is negative, one wonders what has happened to the gold that the prospector was sure was present by the evidence of the naked eye and by the more “scientific” analysis by emission spectroscopy. It would be incorrect to think that most prospectors are stupid, uneducated, and irrational, but it is well known that gold fever can cause temporary derangement. A number of plausible-sounding theories have been advanced to explain why gold is sometimes “non-assayable.” A common idea, which, by the way, is shared by David Hudson, is that gold consists of very fine particles that vaporize or somehow fail to dissolve in the lead collector. All experimental evidence to date indicates that fine gold, down to a size of one micrometer, is collected as efficiently and even more quickly than coarse gold. The temperature during a fire assay never comes within 1,000 [degrees] C of the normal boiling point of gold, and the partial vapor pressure is utterly negligible.

Another common idea is that gold can form strange chemical compounds with nonmetals and that these compounds behave abnormally in a fire assay due to their inability to decompose to metallic gold. This idea flies in the face of chemical thermodynamics. The noble metals are so called because their oxides and other compounds with nonmetals easily revert to metals on gentle heating. Silver oxide, to mention one member of the lower nobility, loses oxygen under atmospheric pressure on heating to only 300 [degrees] C and reverts to silver metal. Intermetallic compounds and alloys are stable, of course, but they pass readily into the lead collector during fire assaying.

There are, in addition, some completely mystical ideas about the nature of “non-assayable” gold. According to Hudson, “ghost gold” is one of the orbitally rearranged monoatomic elements (ORMEs), and its properties are completely different from ordinary gold. In line with the ontological argument for the existence of God, one could argue that the acronym would not exist if the orbitally rearranged monoatomic elements did not exist. It is fruitless to look for ORMEs in the writings of Agricola or Roger Bacon, but earlier studies found in more than five hundred books on alchemy have put Hudson on the right track. “It all goes back to a man [called] Hermes Trimesgritus [sic],” he says.

In addition to the overly optimistic and the mystics on the subject of “non-assayable” gold, there are mountebanks, charlatans, and swindlers. As an example, one expert, who shall go nameless, has invented a method for extracting precious metals by “radio frequency induction” and claims to have a Ph.D. from the Lincoln Laboratory of MIT. An inquiry addressed to the registrar of MIT disclosed that there is no record of any such degree. Sad to say, swindlers have sometimes seduced college professors who have authentic credentials into presenting spurious analytical results. The mining prospectus offered by a swindler usually has a number of giveaways such as persistent, egregious misspelling of technical terms and claims of secret, newly invented processes. Nevertheless many fools are parted from their money despite a general public perception that gold mining stocks are risky in the extreme. An amusing fictional example is the “Beefstake” mining stock in the W. C. Fields film The Bank Dick. Happily, a plot twist reverses the fortunes of swindler and victim.

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Tackling The Issues Behind DeepMine

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It is recognized that internationally accepted standards of safety and health are essential for mining at ultra depth. The objective of this project is to anticipate, recognize and evaluate those hazards which could compromise the health, well-being and safety of employees and to provide solutions to these hazards.

The first task investigates the physiological effects of increased barometric pressure on exposure to airborne pollutants. Appropriate threshold limit values have been determined for gaseous pollutants at 5,000 m, as well as the permissible safe limit for methane. The second task investigates the influence of heat stress on human performance and cognitive ability, particularly the effect of heat stress on the ability to be alert to hazards. The design of the protocol for controlled experimentation is in progress. The last task investigates the impact of ultra-deep mining on the occupational culture of workers, employing both original ethnographic research to provide a detailed description and analysis of daily working life of miners, and focus group research to identify coping mechanisms of miners. As an orientation exercise, four researchers spent two weeks living in hostels at Elandsrand gold mine, and going underground daily with the stope teams to the working places. The next phase will involve participant-observer research in the Upper and Lower Carbon Leader stopes at Western Deep Levels gold mine

Delineating and defining geological structures

A foreknowledge of geological structures is considered to be crucial for safe and productive mining at ultra depth. The objective of this element is to develop routine tools and techniques to prevent a situation arising where geological structures are encountered unexpectedly or have an unexpected effect on mining.

It is envisaged that the reef will be imaged by geophysical tools placed in boreholes. The first task investigates the drilling and behavior of boreholes. The experience of contractors drilling holes in areas that are highly stressed as a result of mining (equivalent to depths of 3 to 5 km) has been captured, and the deformation of these boreholes monitored. The second and third tasks seek to integrate and optimize seismic and electromagnetic techniques. Information on the physical properties of the reef horizon and surrounding strata have been collected. Initial field experiments have been conducted, with promising results obtained using borehole radar to image the Vaal and Basal Reefs. The last task involves the development of an integrated geological and geotechnical database for deep mining areas. A needs analysis has been conducted in order to identify the kind and format of data and the appropriate hard/software; and a combined geophysical, geological and rock mechanics working group for the exchange of existing and newly generated data has been initiated.

Mining layouts and methods

This project seeks to establish criteria for optimal mining layouts and to develop appropriate in-stope processes for each geotechnical area expected at ultra depths, taking into consideration rock engineering, resource productivity and environmental criteria.

The first task involves the establishment and quantification of the critical rock engineering criteria for stoping. Four categories of critical parameters have been identified and quantified: exploration (rock mass information), mining (extraction ratio, average pillar stress, angle between face and discontinuity, fault negotiation), support (energy release rate, backfill, peak particle velocity), and monitoring (seismicity). It was noted that some criteria, such as ERR and peak particle velocity, are ill-defined. In the second task, the critical non-rock engineering systems criteria are established. Three major systems have been identified: environmental, mining/rock breaking, and transport of men, materials and rock. The outputs of the first and second tasks are integrated in the third task which evaluates specific mine design alternatives. Decision support software to evaluate a complex multi-variable system has been used to create a prototype package for evaluating different layouts using the criteria, and work has commenced on simulations of the various mine-layouts to derive a realistic cost-sensitivity analysis. The final task investigates whether or not in-stope process technologies can meet the specified systems criteria within the appropriate mine design.

Stope support

The objective here is to design and develop cost-effective and user-friendly stope support systems which will enable safe and economic mining at ultra depth under static and dynamic loading conditions, whilst minimising material transportation requirements. The stope support system must integrate into the appropriate mining method and regional support system within each geotechnical area.

The first task attempts to predict the static and dynamic rock mass behaviour at ultra depth, and its impact on the behaviour of stope support. No new rock types are expected at ultra depth, though the thicknesses of the various strata will change, and the orebody becomes increasingly quartzitic. The joint and fault pattern will be similar at ultra depth to areas of current mining. Although the intensity of fracturing will increase significantly with depth, it is expected that the fracture envelope will remain much the same. Convergence is expected to be greater, although the rate of closure will probably be much the same as at present.

The second task then establishes quantitative rock engineering criteria for effective stope support at ultra depths. It is predicted that areal coverage will become increasingly important as depth increases.

The third task then assesses the ability of existing deep-level rockburst resistant support to meet these criteria. Gullies are recognised as particularly vulnerable areas, hence a task is devoted to the evaluation of alternatives to conventional gully pack support for an ultra-deep mining environment. It has been found that there is an abundance of suitable supports for gully edges. Present problems with gullies are due to the absence of lines, poor blasting, unstable foundations, incorrect rigging of scrapers, blasting damage, and excessive stiffness of some packs. It has been concluded that solutions are presently available for gully support at ultra depth.

Backfill is currently widely used to improve stability, and there are four tasks looking at its implementation at ultra depth. One task seeks to establish the interrelationship between backfill and face area support units in terms of backfill to face distances. A second task involves a technical and economic evaluation of backfill in current deep-level mining, while a third task evaluates the current backfill compositions and systems in terms of their ability to meet the defined rock engineering criteria.

It has been found that aggregates/tailings mixtures offer high potential for good performance at ultra depth in terms of particle-size distribution and porosity. Comminuted waste is only marginally less effective. Classified tailings need only be used in specific areas based on rock engineering criteria. Indications are that comminuted waste provides the most attractive option for ultra depth. Lastly, there is a task looking at the use of run-of-mine waste for backfill. It has been found that the breakeven cost for underground utilisation (rather than waste hoisting) is favourable at ultra depth mining, but varies according to the underground application.

Seismic management

Rockbursts are one of the most serious obstacles to mining at ultra depth. The objective of this particular project is to acquire the necessary understanding of seismicity, and to develop techniques to manage seismicity, so that rockbursts do not prevent productivity and safety objectives from being met.

Research is being carried out to investigate the relationship between seismicity and depth, mining rate, and mining method (conventional drill and blast, and non-explosive methods such as the impact ripper and diamond saw). Preliminary analysis has been carried out on data from several mines. A fourth task seeks to integrate seismic monitoring and numerical modelling, with three sites being used for detailed back analysis. Finally, the ‘state of the art’ in seismic prediction and hazard assessment is being reviewed. It has been concluded that seismic events cannot, with current technology, be accurately and reliably predicted, although predictions are two to three times better than random. It was found that hazard assessment is applied on time scales of hours to months, and does make deep-level mines safer. It was not possible to determine whether or not certain mining methods or layouts are more amenable to prediction than others.

Refrigeration and ventilation

High rock temperature is another of the most serious obstacles to mining at ultra depth and this project aims to identify, evaluate and develop those technologies and systems which will enable cost-effective ultra-deep mining to take place in acceptable environmental conditions. The emphasis of these technologies and systems should be on effective ventilation and cooling at worker locations.

The first task seeks to determine appropriate criteria for acceptable environmental conditions. It has been found that the design parameters pertaining to occupational health do not differ drastically from those used at current mining depths. The second task reviews the applicability and limitations of existing environmental design software. About 20 different packages have been identified, and evaluation is underway. It has been found that no single set of software utilities deals comprehensively with all the anticipated environmental control issues at great depth. It has already been recognised that there is a need to develop simulation software for the prediction of dynamic heat loads. Work has commenced on the derivation and validation of mathematical models. Empirical models may prove necessary if analytical models are found to be inadequate or too complex.

Loss of ‘coolth’ has serious cost implications. It has been found that there is the potential for a 50% reduction in heat loads if the airway is fully insulated, falling to 30% if partially insulated, to only 15% reduction with a wet or damp footwall. A smooth finish can reduce flow resistance significantly. One task seeks to develop viable airway insulation products. Another key task involves the performance and cost analysis of the cooling generation systems in all deep gold mines. Allied to this work is a task evaluating the efficiency of chilled water distribution systems and air coolers. The quantification of dynamic losses by dams, including the conduction of heat from permanently submerged rock, conduction from tidally submerged rock, heat and mass transfer from air, and thermal radiation from exposed rock surfaces, has been completed. It was found that the long term component is driven by the virgin rock temperature, while the short term transient component is due to varying water levels. A final task is evaluating appropriate in-stope air cooling appliances. Several prototypes have been tested.

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Alaska Continues To Go For Gold

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Silver lagged behind gold as the third most-valuable mineral produced in Alaska, with more than $82 million worth mined in 1998. Lead provided nearly $50 million worth of mined material in 1998, while copper trailed the metals category of Alaska’s mining industry, with nearly $3 million in production.

Including all metals, industrial minerals such as jade, soapstone, sand and gravel (and plain old rock and coal and peat), Alaska’s miners in 1998 dug up $903 million worth of valuable materials from the rich ground here in the far north.

Gold Still Sweetest

Yet most mining and exploration companies that request information from the state’s minerals development specialist, Dick Swainbank, are primarily interested in gold-bearing properties.

“Polymetallics are high on the list to push,” he said. “But if a company is only interested in looking for gold, it’s kind of like flogging a dead horse to try to convince them to look for other things.”

Steve Borell, executive director of the Alaska Miners Association, thinks that trend is slowly changing. “At these times of very, very low gold prices, we’re likely to see some companies looking more at polymetallics,” he said. “Those that have a couple of different metals being produced out of the rock have an opportunity that some of the cash flow can come from something that isn’t very depressed in price.”

Swainbank estimates that $10 million to $15 million was spent last year by prospectors looking for such base metal or polymetallic deposits. That’s only a portion of the $57 million spent on mineral exploration during 1998.

“The bulk of exploration by far is still for gold,” he said.

Red Dog for Zinc

Ongoing exploration efforts for polymetallic deposits are located in Southeast Alaska, in the Brooks Range and on the northern flank of the Alaska Range, Swainbank said.

Mining of these multi-metal deposits is unlike gold production here in Alaska, where several hundred small placer miners and a handful of larger operations make up the industry.

The state’s supply of zinc and lead comes from one primary source in Alaska – the Red Dog mine in northwest Alaska.

“When you look at the annual state report and the total contributions to the $1 billion industry, Red Dog is the big gorilla,” said Borell.

More than 1 billion pounds of zinc were mined in 1998 at the Red Dog mine, located on remote Native lands in northwest Alaska and operated by Cominco Alaska.

That single mine in Alaska produces 80 percent of the United States’ consumption of zinc, and seven percent of the world’s usage, said Swainbank. “They’ve got the world’s largest reserve of zinc,” he added.

Annual production of zinc will likely go up this year. Last fall, Red Dog completed a $200 million renovation project that increased production at the mill and its unique transportation system by up to 40 percent, helping to make the expensive, remote processing plant more economic to operate.

“They had to increase their throughput because their fixed costs are so high,” Borell said. “If they increase production, then the fixed cost for the components – each pound of zinc – is much less.”

Add in about 80,000 tons of lead and about 5 million ounces of silver, both byproducts of the Red Dog deposit, and the total gross value of annual production in 1998 climbs to $518 million, Swainbank said.

That’s close to 60 percent of the $903 million in mineral production reported in Alaska during 1998, he said. “Red Dog is the biggest player in Alaska, by far.”

With the production rate increase project finished at Red Dog, Swainbank expects it could give another record-setting mine in Alaska a run for its claim as largest in the United States.

Greens Creek for Silver

The Greens Creek mine.

The Greens Creek mine.

The Greens Creek Mine in Southeast Alaska is the largest silver producer in the nation, with close to 10 million ounces, about $53 million worth, mined in 1998, Swainbank said.

That’s good news for the Juneau-area mine, which employs more than 250 workers in Southeast Alaska. “Commodities in general are way down, but the one exception is silver,” said Paul Bateman, of the Washington, D.C.based Silver Institute. “Silver has enjoyed a great deal of resilience in the marketplace.”

Because of silver’s industrial applications, which include electronics, photography and medical uses, demand for the metal has remained strong, he added. “Silver’s strength in a commodity is rooted in the fact that it is used so many different ways.”

In addition to silver, Greens Creek mine also produce zinc, lead and gold. In 1998, about $54 million worth of zinc, $18 million worth of gold and $11 million worth of lead were mined at the facility.

The state’s small amount of copper production comes from both Greens Creek and the recently closed (likely temporary) Nixon Fork gold mine in Interior Alaska.

Despite the sometimes overwhelming profile of gold in Alaska and the remoteness of valuable mineral deposits, base metals already make up a significant impact in the state’s mining industry and the overall economy in Alaska.

With projects like Red Dog and Greens Creek already operating during low metal prices, Alaska may prove to be a land of opportunity for additional polymetallic mines.

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The UK Continues To Shed Reserves

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The shock announcement on 7 May of the UK’s intention to sell more than half its gold reserves dealt a fresh body blow to the already beleaguered gold market. Coming after Switzerland’s vote to abandon the gold standard in April and with gold sales by the International Monetary Fund looking increasingly likely, the latest news took more of the shine off the yellow metal.

bofeThe UK bombshell sent the gold price reeling – it immediately fell by $7 per ounce and by a further $3 the following Monday – and furnished further evidence of official sector disenchantment with gold as a reserve asset. Hopes were dashed that the threat of central bank sales would subside with the introduction of the euro and the establishment of the European Central Bank (ECB).

With growing political support for IMF gold sales to fund debt relief and Switzerland intending to sell 1,300 tonnes of its gold reserves, the outlook was already cloudy for the metal.

Andy Smith, gold analyst with Mitsui, quips: “That the Old Lady of Threadneedle Street is raising her skirts is shocking enough, of course. But since market expectations were raised that no European Central Bank would show even so much as an anklette of gold for a while, the impact is breathtaking”.

Of the foreign reserve assets transferred to the ECB by the euroland national central banks at the beginning of 1999, 15% were in gold. Under an ECB guideline, all operations in foreign reserve assets remaining with the national central banks including gold, are now subject to approval by the ECB.

The UK Treasury plans to reduce its 715 tonnes of official gold reserves to around 300 tonnes over the medium term. It intends to sell 125 tonnes of gold during 1999-2000 in a series of five auctions conducted by the Bank of England on behalf of the UK Treasury. The first auction will be held on 6 July, and the others in September, November, then in January and March 2000.

The Bank of England said that the first will be conducted on a “single, or uniform, price basis”, with bars allotted to the highest bidders at a single price equal to the “lowest accepted bid”. Subsequent auctions will follow this single price format but the pricing method will be subject to review in the light of experience.

The UK Treasury called the gold sales a “restructuring of the UK’s reserve holdings to achieve a better balance in the portfolio by increasing the proportion held in currency”. The $6.5 billion held in gold accounts for 43% of the unhedged or net reserves, after netting out foreign currency liabilities amounting to $22 billion from UK gross reserves totalling $37 billion at market prices.

However, some commentators have pointed out that the usual yardstick for official gold holdings is gross reserves, by which measure the UK has maintained a lower proportion compared with its European neighbours.

Haruko Fakuda, chief executive officer of the World Gold Council (WGC), an international organisation formed and funded by world gold mining companies to increase gold demand, protested in a letter to the Financial Times: “Instead of comparing apples with pears, let’s look at the true position of some other countries. In Germany, gold forms 33.2% of gross reserves; France, 43.5%; Italy, 50.4%; the US, 51.3%. By reducing its holding of gold from 17% to 7% of gross official reserves, the UK will be on a level with Albania.”

This yawning divide between the UK and continental holdings belies suspicion that the UK planned sales were politically motivated to smooth the way for UK entry to the euro.

Robert Guy, director of NM Rothschild, the UK merchant bank, and a former head of the London Bullion Market Association, is slightly surprised at the timing of the announcement but says the logic of the decision is “perfectly understandable” and supports the methodology. He advocates auctions for their market transparency and cites the “practical proven experience” of the gold auctions held by the US government and the IMF in the 1970s.

He observes that many central banks, whose role has become increasingly dominated by the actual management of their reserves, have been hit by the “proverbial double whammy” – a poor return and falling price. Moreover, the single European market and the single currency translate much of what was previously external trade into internal trade, and therefore decrease the required level of reserves for European central banks.

However, the UK is under no domestic pressure to sell down its gold reserves, says Guy, and Gordon Brown, the UK Chancellor of the Exchequer (finance minister), is a strong and vocal advocate of sales of IMF gold to fund increased debt relief for the Heavily Indebted Poor Countries (HIPCs). To assist the IMF process and to enhance the return to be made on the sale of IMF gold, it would be arguably helpful if other official holders were not selling their gold at the same time.

While gold has always had the double characteristic of being both an official sector reserve asset and a private commodity, the balance has shifted over the past few years, with gold’s role as a reserve asset diminishing and a transfer taking place into private hands. According to the WGC, in the past 10 years, five central banks have sold major quantities of gold: Belgium, the Netherlands, Australia, Argentina and Canada.

On the other hand, the buyers have included Poland, Russia and the Philippines. The WGC argues that the reasons why central banks should hold gold remain intact: for example, gold is no one else’s liability and gold reserves build public confidence. “We don’t accept that the Bank of England’s move signifies the end of gold as a reserve asset,” says Gary Mead, WGC head of research.

However, Andrew Howard, a metals analyst at Dresdner Kleinwort Benson, is worried that the British move might be pre-emptive for other countries to try to beat one another to the punch in selling as soon as possible. “This is a critical point in the gold market,” he cautions.

Philip Klapwijk, managing director of Gold Fields Mineral Services, the commodity research consultancy, says the demonetarisation of gold which began about 30 years ago is reaching its logical conclusion and he expects central banks on a net basis to continue to run down their gold stocks. While it will not necessarily drive down the price, it puts a cap on the market, dampening speculative interest on the long-side.

In April, gold received another symbolic blow when the Swiss decided in a referendum to abandon the gold standard by breaking the legal link between the Swiss franc and gold as part of an overhaul of the Swiss constitution.

The Swiss government has also proposed the sale of 1,300 tonnes of gold, or almost half of the country’s gigantic gold reserves, and to use around 500 tonnes of the proceeds to fund a “Solidarity Foundation”. However, the creation of this humanitarian fund requires approval in another referendum and further legislation is required to permit gold sales, which is not expected to come into effect before spring 2000.

The proposed sale of up to 10 million ounces of the IMF’s 103 million ounces of gold to support the funding for a debt relief initiative for the HIPCs is strongly endorsed by the US and the UK. At the IMF’s spring meeting, an interim committee agreed in principle on the sale and it is anticipated that the G7 may reach a common position at its summit in Cologne this month.

However, since the US casts almost 18% of IMF votes, the fate of the proposal depends on the US administration winning 85% majority approval in Congress. The fact that the initiative does not call for additional funding outlays from Congress might be a well received point.

Despite the generally gloomy outlook for the gold market, there are some glimmers of light. The World Gold Council’s 1998 figures showed that gold demand recovered from massive dishoarding in Asia in early 1998 to reach a record three-month level in the fourth quarter.