Golden Gamble in Grass Valley, Part 1: Intro

Mar 7, 2005 – A four-lane freeway runs past it. A hospital overlooks it. Apartment complexes, homes, shopping centers, businesses and warehouses sit on or near it. High-tech companies fill the nearby industrial park. In short, this swath of land a couple miles from downtown Grass Valley, population 13,000, looks nothing like it did in 1956, when the Idaho-Maryland Mine closed its gold workings and retired as California’s second most productive underground mine.

As well, Grass Valley itself, nestled in the Sierra Nevada foothills, operates nothing like it did back then. The city’s mining legacy is now a tourism draw. Nearby Empire Mine State Historic Park, home of the state’s No. 1 underground gold producer, attracts thousands of people a year for its lessons on gold’s heyday in the 19th and 20th centuries. Amateur gold panners regularly trek to nearby rivers and creeks hoping to gather flecks of the yellow metal. On lands in western Nevada County, many of mining’s old shafts and tailing piles are overgrown with trees and brush, often invisible to passing hikers, mountain bikers and equestrians.

“When I was a kid, we played in the caves all the time,” Grass Valley Mayor Gerard Tassone said. But now, he said of his city: “It’s become much more sophisticated than it was during those days, meaning that a lot of different cultures have come in and changed how business is being done.”

Forty-nine years after the Idaho-Maryland closed, however, believing there are still gold veins worth pursuing hundreds and even thousands of feet underground, Emgold Mining Corp., a Canadian company that trades on the TSX Venture Exchange, has launched new plans to reopen the mine and make it the state’s only industrial-scale operation and the only one within a city’s borders.

“If mining actually occurs at the Idaho-Maryland project, it would be the only medium- to- large-scale operation at this time. We have a handful of small mines under permit,” said Liz Kanter, State Water Resources Control Board spokeswoman.

Emgold officials say they can haul in at least 1.5 million ounces of gold and create 400 good-paying jobs. They also expect to extract the precious metal at a cost well below gold’s roughly $400-per-ounce market price. Further, they say, production costs will be defrayed by using a patented technology to convert tons of mine tailings into ceramic bricks and tiles. They also say operations won’t tread on the environment, that mining’s poisonous chemicals and by-products — including sulfides, cyanide and arsenic — will be easily contained. Company officials have said they hope to be permitted by next year and begin operating by 2007.

Ross Guenther, an Emgold board director and project manager for the Idaho-Maryland Mining Corp., an Emgold subsidiary, said the discharged mine water that would head to Wolf Creek would meet government standards for such metals as iron and manganese. “The laws are always illogical, but we deal with them as best we can. We have to clean up (discharged water) better than the water that we’re putting it into.”

But skeptical observers say that pumping the mine will send too much water to Wolf Creek, disturbing the habitat with unnaturally higher flows. Nearby residents with private wells have worried their water supplies will be depleted during dewatering. Other concerns include added traffic, noise and light pollution, dust, and tailing piles.

There’s also the issue of financial viability. Emgold has never put a mine into production and bowed out of plans to reopen the Idaho-Maryland in the 1990s, when the company was called Emperor Gold Corp., partly because of fallen gold prices. Further, Emgold is what is called a junior mining company, and juniors rarely go into production, and those few exceptions even more rarely start mining without a major investor supplying capital.

“We always continue to look at all options in financing, on whether we merge or acquire other mining companies,” Guenther said. “It could go either way, but right now we do plan to go it alone.”

Guenther, in a carefully worded comment, said the mine has about 1.5 million ounces combined in gold reserves. “There are measured plus indicated mineral resources of 472,000 ounces, and we can also say there are inferred mineral resources of an additional 950,000 ounces,” he said, noting regulators demand such meticulous language.

But sources elsewhere dwarf that figure. Emgold itself issued a press release this month saying the mine could yield more than 6 million ounces. Frank Lang, Emgold’s chairman and a longtime mine promoter, said in an interview that perhaps 7 million ounces could be extracted. That amount would nearly triple the 2.4 million ounces of gold pulled from the Idaho-Maryland between 1862 and 1956, and far exceed the Empire Mine’s legendary yield of 5.8 million ounces.

“This Idaho-Maryland is a very undervalued situation,” Lang said from his Vancouver office, where he watches over The Lang Mining Group, which consists of four junior companies including Emgold.

But Lang’s figure was topped by a Beverly Hills investment manager quoted last month on mineweb.com. Ken Gerbino, the article said, estimated that 3 to 10 million ounces are still in the mine. “These are really quality people. This one is going to be a killer,” Gerbino said in the article.

Guenther, who said he knows Gerbino, commented: “I suppose he’s entitled to his own estimate, but he doesn’t work for us.” Generally, he said, “a huge difference” exists between a mine’s potential and its known resources.

But some wonder why other players haven’t hopped aboard a project that claims so much potential.

“If there’s that much down there, why isn’t a larger company interested?” asked Tom Myers, a Reno, Nev., hydrologist who consults with communities on mining issues.

“My own experience is that less than 1 (mine) in 50 is in fact viable,” said Jim Kuipers, a Butte, Mont., mining engineer who used to work in the industry but now consults with public interest groups and local governments. “But there’s an old saying in the mining industry, that there’s more money spent on finding new mines than is actually made in mining – particularly when we’re talking about how they basically raise stock money and spend it.”

Lang, for his part, acknowledged that mine shares make for risky investments. “But there can be a tremendous reward at the end,” he said. Guenther said companies have shown interest in the mine but that Emgold isn’t negotiating with anyone.

For those reasons, Mayor Tassone said, he wants to see Emgold’s business plan during the review process. He’s heard the stories of mines that stop production when gold prices drop or environmental problems occur. “I don’t want to have to approve something like this and a couple years down the road they say, ‘You know what, we’re not going to do it.’”

The Idaho-Maryland Mine’s mineral rights spread across about 2,800 acres underground, where about 70 miles of tunnels remain. While the project area is mostly in the county — which processed Emperor Gold’s 1990s application, it’s also in the city’s sphere of influence, and Grass Valley wants to be the lead agency.

The mine has 142 surface acres that generally run along East Bennett, Brunswick and Idaho-Maryland roads, and access for dewatering would occur at the New Brunswick Shaft in the southeast corner. Access for exploration and mining would be in the northeast corner, where the ceramics plant would operate. Water treated on the property to remove metals and chemicals would be discharged into South Fork Wolf Creek, which flows west along East Bennett Road before meeting Wolf Creek in Grass Valley. Wolf Creek empties into Bear River.

Plans to reopen the mine coincide with the Wolf Creek Community Alliance’s hopes of restoring the creek through Grass Valley to make it a more pedestrian-friendly, natural waterway and an economic benefit to the downtown area.

Alliance Board President Rick Sanger said the group has been studying the mine project recently. “We are concerned that the construction, dewatering and ongoing operation of the mine will degrade the health of Wolf Creek as well as the health of the entire watershed,” he said.

“It is a complicated matter, and we have not wished to act in an ill-informed manner,” Sanger added. He said the group’s prior silence shouldn’t be portrayed “as necessarily in approval of this project.”

To gain access for exploring the mine’s gold potential, Emgold has said it needs to initially pump 700 million gallons of water — or 2,500 acre-feet, with an acre-foot equaling one acre covered a foot deep in water, or the amount of water used by a family of four in one year. Initial dewatering would occur at a rate of about 12 acre-feet per day and take about seven months. During exploration, an average of 1,375 acre-feet a year would be dewatered over a course of five years.

Grass Valley Community Development Director Joe Heckel said that the Idaho-Maryland will undergo an extensive, unique review process. Beyond looking at environmental impacts, city officials will have to consider annexing the mine property into the city, making multiple zoning changes and altering the city’s General Plan — a document that sets land use policy years into the future. Before the city begins the Environmental Impact Report process, it will take the rare step of processing a Preliminary Environmental Assessment, allowing for additional public review. City planners already are keeping busy: Emgold’s application, filed in early February, arrives just as city officials are processing four large-scale subdivisions whose developers also seek annexation.

“Having the only gold mine within a city is not something that occurs regularly in California,” Heckel said. “I wouldn’t call it an oddity, but it’s something unique in California.”

The state will also have a say in the project, from whether it decides to issue a discharge permit to overseeing long-term monitoring. There are no operating mines in the state of comparable size to the Idaho-Maryland, according to state officials.

Mines in California also must adhere to the state Surface Mining and Reclamation Act, which basically requires that operations have a reclamation plan to restore the landscape after mining has ceased, and provide for financial assurances, so taxpayers won’t get billed if a mining company goes bankrupt and abandons the project.

“It’s difficult to get almost any kind of project in California up and running just because California is one of the strictest, if not the strictest, in their environmental review requirements and environmental regulations that have to be complied with,” said Greg Zitney, a Novato-based consultant on SMARA issues who has worked with Heckel on projects in other cities.

But Kuipers, the Bozeman-based consultant to public interest groups, disagrees. He has studied mining practices in the Western states and gives Montana and New Mexico the highest marks.

“California is not stricter, necessarily. I’d call it a mythology,” he said. “There’s this idea that California is going to be highly regulated because California is so environmentally conscious,” said Kuipers. He said environmental oversight sometimes breaks down because it’s handled differently by local governments, cities and counties.

Some are beginning to ask if Nevada County’s golden days are too far gone for a comeback. In 2003, the county had 3,100 jobs classified “natural resources, mining and construction,” according to the Sierra Economic Development District. The last SEDD numbers recording strictly mining jobs was in 2000, when there were three operations that employed an average of 19 employees a month. Overall, the state had 16 active mines about that time. In the private sector, the 2003 figure of 3,100 jobs was exceeded by service providing (23,900 jobs); trade, transportation and utilities (5,100); goods producing (4,900); retail trade (4,200); and leisure and hospitality (3,600).

Has time passed up the industry whose fortunes first sent people flocking to California in the mid-19th century? Can Grass Valley, a town that has long since shifted away from the extractive model and more toward tourism, light industry and high technology, return to such a resource-intensive industry?

“In my view, currently we have a gold mine in Grass Valley: It’s our scenic beauty, our wonderful climate and our quality of life, and we’re seeing that Grass Valley is becoming like a cultural industry,” said Ralph Silberstein, a member of the Wolf Creek Community Alliance who made clear he wasn’t speaking on his group’s behalf. “We have clean industries and a healthy business climate,” he added. “Do we want to risk changing this image and go back to being a mining town or a factory town? It’s all just for money.”

But Kirk Christman, a Nevada County mining consultant with small gold-mining operations of his own, calls such sentiments the uninvited influence of outsiders he says don’t know “the true history of the county.”

“This whole county is built on mining. It wouldn’t be here if it wasn’t for mining,” he said. “Mining and logging is what drove this whole thing. … Just because they’re coming to retire here doesn’t mean they have to stop what’s going on.”

Guenther dismissed the notion that high-tech businesses have rendered mining a yesteryear industry. Local companies such as Grass Valley Group brought innovation and good jobs to the county, he said, but he also pointed to the flow of similar U.S. jobs being sent overseas.

“Computer industries, these can be outsourced, but mining cannot be outsourced,” Guenther said. “Minerals are where you find them. Computers can be shipped all over the world, even outer space, and the work can get done.”

This is not a new debate. In the 1990s, many of the same mining officials — then under the name Emperor Gold — gained county permission to dewater and explore the mine. It also received a dewatering permit through the Central Valley Regional Water Quality Control Board, but the permit lapsed in 2001. During the approval process, residents along East Bennett Road and surrounding streets worried about well depletion. Dozens who formed the Bohemia Area Residents Committee demanded a backup water-supply plan, according to people involved in the deal, and Emperor said it would buy a large enough bond to fund Nevada Irrigation District hookups in case dewatering depleted residents’ wells.

The backup plan was never needed because Emperor never pumped water. Gold prices had dropped below $300 an ounce, making financial backing hard to come by, Guenther said. He said the mine would have a similar contingency plan for bonding this time.

Now, with a depressed dollar and higher gold prices, some of the same residents, who generally live on or near East Bennett and Brunswick roads, find themselves paying attention to the mine’s latest moves. In 1995, one of those residents, Gary Pierazzi, had sharp words of caution for the project.

In a letter to the county that appears in the 1995 Environmental Impact Report, he wrote: “What has been unearthed, so to speak, is a record which is long on promises but very short on accomplishment. … I remind you that it is the financial insecurity of numerous Canadian companies, which has resulted in many abandoned and failing mines in this country. Many of these companies are not mining gold but, in actuality, are mining investors. If Nevada County really wants to proceed with this proposed project, let’s be sure they can accomplish it in an environmentally acceptable fashion.”

Since then, with word that Emgold is seeking again to open the mine, Pierazzi said he has occasionally called Guenther to check the project’s status. Pierazzi’s was one of the wells determined to be at risk if dewatering commences. “I have mixed feelings,’ he said of the latest project plans. “If they’re willing to be responsible and give us assurances, I mean real assurances that we can have an uninterrupted water supply — I mean uninterrupted water supply – I think I can agree to it.”

Water concerns are at the center of the project, and the issue of whether dewatering can impact wells is one of the main areas of debate.

The 1995 Nevada County EIR “basically concluded” that there was not a direct relationship between the wells and mine dewatering, county planner Tod Herman said. But Myers, the Reno hydrologist, who reviewed some of the EIR’s hydrological studies for YubaNet.com, said such studies can never fully anticipate what will happen when the dewatering begins. In the foothills, wells generally draw water from granite fissures of various sizes and shapes — versus smoother, more predictable aquifers in other parts of the state.

“They don’t know where all the fractures are,” Myers said. “There are things they could do, but without actual pumping, they won’t know.”

For some, the examples of what can go wrong are too numerous and all too close. Mercury, no longer used in large-scale mining operations, still lingers in county waterways. In looking at the entire Yuba River watershed, the State Water Resources Control Board listed mercury, copper, zinc, sedimentation and siltation among the watershed’s leading pollutants and stressors, with mining listed as the potential source. The U.S. Geological Survey has found mercury left from mining throughout Nevada County.

In Grass Valley, the city and Newmont Mining Corp., are still sparring over the discharge of contaminated water that city officials say comes from the historic Northstar Mine.

Nevada County’s last industrial-level gold operation, the San Juan Ridge Mine, closed in 1998 after an underground disaster, according to Herman. “It did a lot of damage,” he said, describing how mine workers accidentally struck an underground water-bearing fault zone in 1996 and drained numerous wells up to two miles away.

“They restored all the wells,” Herman said. “They did everything they were supposed to, but it’s very unfortunate because in its heyday it had 80-some-odd employees.”

For a shuttered mine that left longer-lasting problems, look just a few miles away from the Idaho-Maryland to the Lava Cap Mine. It’s now a federal Superfund site, because of contamination from arsenic and other heavy metals in the water and ground associated with historic mining operations. Cleanup costs are expected to exceed the value of all the gold extracted from the mine.

In the 1980s, efforts to reopen the Lava Cap in a residential area failed after a countywide election overturned the county Board of Supervisors’ vote to rezone the mine. The vote to reverse the rezone won by eight votes, according to resident Betty Simpson.

Simpson, whose house sits 600 feet above a tunnel that connects the Banner and Lava Cap mines, led a petition drive to get the referendum on the ballot. Residents also hired a hydrologist, whom Simpson said couldn’t assure that the mine wouldn’t impact wells.

“When the county wouldn’t guarantee that they wouldn’t harm all of these properties, what could we do?” she said. “We did what was necessary to help ourselves.”

“I’m certainly not a mining engineer or a hydrologist,” Simpson said, referring to talk about the Idaho-Maryland, “but I do think (residents) need to be alert to what’s going on because if they don’t raise the questions during the EIR, they don’t really have too much of a chance after that — other than a civil lawsuit.”

Meanwhile, Mayor Tassone said he’s already proceeding cautiously as the city begins treading somewhere between its past and its vision of the future. “There’s really no other city that has a working gold mine in city limits,” he said. “We’re kind of starting from scratch here and taking a step way back in time.”