OURAY COUNTY – The recent volatility of the gold and silver market has spooked investors and wreaked havoc with the plans of many companies in the mining sector, but the pace of work at the Revenue-Virginius mine near Yankee Boy Basin, 6.9 miles south of Ouray, continues full speed ahead, as Star Mining Operations charges toward its goal of mining and milling ore at the historic silver mine by fall.
Project Manager Rory Williams, a 20-something graduate of the Colorado School of Mines, is tasked with overseeing this ambitious effort, which has unfolded against a backdrop of dramatically fluctuating precious metal values.
Shortly before Star Mining Operations acquired the Revenue-Virginius Mine through a lease-purchase deal almost two years ago, silver had hit a record high of over $43.49/ounce. Fast-forward to June 27, 2013, and the precious metal had lost well over half its value, plunging to $18.61.
Gold has had a similar story to tell; it peaked at $1,896 in early September 2011, sparking a flurry of interest in reopening historic mines in the area, only to plunge briefly below the psychologically important $1,200 mark earlier this summer. Over the past month, the values of both precious metals have rebounded, but only slightly.
“It hasn’t affected our plans,” Williams said of the turbulent market. “We haven’t reduced any staff and don’t have any plans to. We are definitely watching it closely but at these levels, we are still economic and can keep rolling ahead.”
Indeed, Star Mining’s work force has swollen to about 100 in recent months, even as the price of silver has plummeted. Work is proceeding feverishly, with three shifts of miners working 20 hours a day, seven days a week, and surface workers putting in 10-hour days, five days a week.
Mining crews have been focused on rehabilitating the historic underground workings that probe some two miles into the mountainside, and laying rail into the very back of the mine. They are poised to put in some raises to access ore veins in previously untapped regions of the mine in the near future.
Work is also progressing toward installing an underground mill, which should be ready for operation later this month. Optimally, the mill could process up to 300 tons of ore per day, Williams said.
The mine also boasts a brand new dry room facility, with lockers, showers and bathrooms for the miners on the ground floor, and offices for underground manager Jack Clark and surface manager JL (“Little John”) Trujillo on the second floor. “It’s top of the line, and all the employees are very happy,” Williams said. “It’s a really nice building; it has really helped morale a lot.”
The crew at the Revenue-Virginius continues to be comprised of mostly local workers from Ouray, Montrose and San Juan counties. Recent lay-offs at the nearby Camp Bird Mine enabled Star Mining to pick up some top hands that had previously been employed down the hill.
The fact that Star Mining is well-capitalized from within (rather than trying to attract skittish outside investors) and has no plans to go public in the near future, has largely shielded its operations from the impact of market vagaries, Williams said.
The Camp Bird Mine’s new operator Caldera Mineral Resources, on the other hand, was actively seeking investors in Singapore, and, according to company documents, laying the groundwork to make a initial public offering just as gold and silver values took a steep tumble.
Work at the Camp Bird came to a virtual standstill in mid-June, with 15 of 22 workers laid off.
Just over the county line near Silverton, another would-be mine operator also recently put its exploration and development program on hold.
In a letter to the San Juan County Commissioners, dated July 25, the president and CEO of the Buffalo Boy Mining Company, Maurice Lynch, pointed his finger straight at the recent declines in the prices of gold and silver as the culprit behind his venture’s recent shutdown.
Even so, Lynch and many others in the mining sector remain optimistic about long-term prospects for mining in the San Juans.
One interesting case in point comes from Fabian Olarte, a consultant with Control Risks, a London-based independent, specialist risk consultancy with many clients in the extractive industries.
Olarte was dispatched to southwestern Colorado in late June, just as gold and silver values were plunging to their lowest levels of the recent slump. Olarte’s client, which he described as a medium-sized Canadian company, was nevertheless still interested in pursuing several mining ventures in the San Juan Mountains and had hired him to do a social risk assessment of the region.
The client was moderately concerned about the recent dip in the price of gold, Olarte said, but also realized that “it’s the nature of the business” for values to fluctuate. A downward trend in commodity prices “does make risk appetite a little less strong, but at the end of the day, the capacity to go into these places and find a solid, safe regulatory environment and a community that wishes [mining companies] to come in, is its own commodity,” he said.
Some companies, Olarte reflected, are willing to go into these markets even as precious metal prices are softening, because they have an appetite for an environment that precludes the kinds of coups, kidnappings, and government takeovers of private ventures that they may face in more volatile places like Africa, Central and South America, and the Middle East.
Different experts have different opinions as to what is behind the recent fluctuation in the values of silver and gold. Investors tend to sock more money away in gold when the dollar is weak, and during times of political and economic uncertainty; this probably played a role in the steep escalation in gold and silver values starting in 2008 and 2009 as the recession kicked in, peaking in 2011.
Olarte, who previously worked as a commodities trader on Wall Street, described gold as “the real last vessel of reserve currency in the world; it seems to be a sustainable commodity forever. It is currently taking quite a beating,” he said, “but hopefully we will see another uptick; the jury is out.”
As for the recent plunge, analysts at the international investment bank Barclays blamed the softening gold market on a number of things: “Firmer equity markets, a firmer dollar and firmer-than-expected U.S. housing data” – in short, signs of economic recovery – that led investors to become more interested in “other asset classes,” triggering a massive sell-off.
Lifelong Ouray-based mine developer Carl Dismant speculated that gold prices “will probably get softer” before they firm up again, but that the Revenue-Virginius, as a silver mine, is well-placed to weather market vagaries. “Silver has become a commodity, for cell phones and electronic gear,” he pointed out.
Dismant has been paying attention long enough to remember when gold took its last plunge in the ‘80s from over $800/ounce to under $300. That plunge proved the death knell to the last surge of mining seen in Ouray County.
Dismant has been working ever since then to generate interest in his own mining property, the Bachelor Mine on Gold Hill near Ouray, and was hoping one of the new operators in the area might pursue it.
“We are trying to keep our powder dry and see how things go,” he said. “All the balls are up in the air. People are looking. But this last little drop in the price of gold is not going to help. We are on a standby basis, and nobody is beating down the doors.”
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