All of us know at least one person who, as a hedge against imminent financial collapse, is stockpiling gold (not to mention Dinty Moore stew and guns). The idea is to have some kind of solid form of currency when the dollar and Euro go up in smoke, whether brought on by Obama, big banks or climate change (or to make a big pile of Euros and dollars if they don't).
While I get the Dinty Moore thing, I'm baffled by the idea that gold will somehow have value at end times when currency does not. I'm even more confused, however, by the fact that many of those suffering from the gold bug are self-professed, ardent environmentalists. There seems to be a bit of a disconnect there, perhaps caused by the fact that gold is likely to hit $2,000 per ounce this year. But now I've found a way to make those connections clear: Visit a gold mine.
On a brisk day in April, my colleagues in the Ted Scripps Fellowship in Environmental Journalism at CU Boulder and I took a tour of the Cripple Creek & Victor Gold Mining Company west of Colorado Springs. An affable guy named Dick Crow was our guide. He drove us into the heart of the big pit, let us climb around on one of those gargantuan dump trucks, and dispensed mind-blowing bits of information about the economics of running a gold mine.
It wasn’t that long ago that most gold mining was a rather marginal proposition when it came to profits. The price of gold fell below $400 per ounce in 1989 and lingered there before dropping below $300 per ounce in 1999. The mining industry in places like Colorado's San Juan Mountains went belly up. Only the leanest mines -- mostly open pit -- could afford such a slump, and even those were tentatively scheduled to be phased out.
In the early Aughts, though, things started looking up for the mining companies as the price of gold began a steady climb, at least partially driven by demand from the burgeoning economies of Asia. By 2007, gold was nearing $700 an ounce, and when the economy went to Hell in a hand basket in 2008 and investors and doomsdayers started throwing their money into gold, things got crazy. The price hit $900 per ounce in 2009 and $1200 in 2010. Last year, gold sold for $1900 for a short time, and now it’s in the $1600 range. Mines that were thinking of shutting down a decade ago are now going great guns.
That includes the Cripple Creek mine, owned by AngloGold Ashanti, one of the biggest gold producers in the world. Its main pit, 1200 feet deep in the heart of a 32 million year-old volcano, is a bustling place around the clock. Exploratory drill rigs penetrate deeply at a 45 degree angle to try to find gold. Other rigs bore hundreds of holes in the rock, each of which will be stuffed with 650 pounds of ammonium nitrate and diesel fuel for the regular “shoots” that blast apart the rock so that it can be scooped up by big mechanical shovels. The shovels, each costing $5 million to $7 million, with scoopers as big as 40 yards across, load the ore into dump trucks as big as a house, each of which can carry as much as 300 tons.
We weren’t able to watch the shoot, but maybe that was okay, as the sheer scale of the whole operation and the numbers that Crow barraged us with were overwhelming enough. The mine spends $60,000 per month on water from the nearby town of Victor just to keep dust down, says Crow, and $500,000 per week on diesel fuel for all the trucks and equipment rumbling around the mine.
Those giant trucks dump their loads in the crusher, a gargantuan machine operated by a guy with two joysticks surrounded by computer monitors. The crushed ore is sorted and sent into more crushers. But first, an electromagnet is used to retrieve scrap metal from the ore. You see, the mountain that this pit is methodically eating into was the heart of the historic Cripple Creek mining district, and contains an estimated 3,000 to 5,000 miles of mining tunnels. As the pit grows, it swallows up those shafts along with all of the equipment -- shovels, drills, etc. -- that was left behind. Thus, the big magnet -- you don’t want all that crap gumming up the crusher. (Weird fact: Three handguns have been found mixed in with the ore).
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The finely crushed ore is then piled up in hillsides of sorts, atop thick plastic liners. Draped down the hillside are drip irrigation tubes, which ooze a sodium cyanide solution into the ore. The cyanide leaches the gold out of the ore, and the gold-cyanide mix migrates into a catchment area, where it’s retrieved, melted down and sent to a smelter in Utah.
That such an operation makes economic sense -- or any sense at all -- is hard to fathom. Crow says the mine gets just one-and-a-half ounces of gold out of every 100 tons of rock, or a ratio of about 200 million to one. But he also says that last year this mine produced 260,000 ounces of gold. At today’s prices, that’s more than $400 million (this doesn’t translate directly into revenues for the mine, which sells its gold to the smelter at a below-market rate, but still.)
It’s not just all these crazy numbers, fleshed out in real rock and steel and machinery, that are shocking, but also the factors that drive them. It's true that copper mines are typically even bigger operations, and rising prices are also driving a copper mining boom. But copper's price is increasing because it has functional uses, such as in pipe or wire used in the growing infrastructure in China, or the circuitry in all those smart phones we just must have. Gold prices, on the other hand, are escalating in part thanks to a demand for jewelry, but also because of the aforementioned investors -- people buying gold just to, well, buy it, hoard it and maybe sell it down the road to make a profit.
The rising value of gold is based on illusion. The grinding, blasting, digging, and rumbling at the bottom of a gold mine’s pit is very, very real.
To schedule your own tour of the Cripple Creek gold mine, see http://www.ccvgoldmining.com/contactsearch.html.
Photos by Jonathan Thompson: Jody Jenkins climbs up to the cab of a dump truck capable of hauling 300 tons; overview of the mine looking to the West; heavy truck traffic at the bottom of the pit.
Jonathan Thompson is a contributing editor at High Country News and a 2011-2012 Ted Scripps Fellow in Environmental Journalism at the University of Colorado Boulder.