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May 16, 2005 – Gold is a shaky market commodity. Its price fluctuates with the slightest economic twinge, and when prices dip enough, gold mines close, workers lose jobs and investors get left in the lurch.

Something similar happened at the Idaho-Maryland Mine in Grass Valley, Calif. In the mid-1990s, when the price for an ounce of gold dropped below $300 (compared to recent prices around $420), officials ditched their plans to dewater and explore the underground mine. For naught, locals had endured a lengthy and contentious public review process that involved concerns about groundwater depletion, pollution, traffic, noise, property values and other neighborhood issues.

That’s partly why observers look cautiously at the latest plans to reopen the Idaho-Maryland, which has remained closed for 49 years. If the gold market sags, what’s to stop the mining company, Emgold Mining Corp., from quitting the project again?

Emgold says it has a possible safety net this time. The Canadian junior mining company says it can withstand market volatility by heating mine tailings — what’s left of processed ore after the gold has been chemically removed with cyanide – at temperatures high enough to form them into products such as tiles and bricks with a patented machine that hasn’t been used on a commercial scale. The ceramics operation would provide 200 of the mine’s 400 full-time jobs, Emgold says. Even if gold prices plummet, goes the theory, the mine could stay open as a ceramics plant.

“At that point, we might be more of an industrial ceramics business with a gold byproduct,” said Ross Guenther, project director for Idaho-Maryland Mining Corp., an Emgold subsidiary.

Intrigued and mystified city officials want to see Emgold’s business plan for this dual venture of gold mining and ceramics-making, and they want to learn more about Guenther’s patent and pending patents. The Idaho-Maryland would be California’s only mine inside a city’s borders, and the only medium- to large-scale mine in the state, and mining-industry observers say junior companies rarely go into operation on their own.

The sheer numbers behind this plan are staggering for some in the town of 13,000. Emgold’s proposed ceramics building, at 156,000 square feet, would be among Nevada County’s largest. The company says it intends to process 2,400 tons of tailings a day into ceramics. And the conversion of that much tonnage would involve enormous energy consumption: Emgold says the ceramics plant would burn 2.1 billion cubic feet of natural gas per year, which, according to Pacific Gas & Electric, is enough to supply 25,000 to 50,000 households for a year.

But Mayor Gerard Tassone said Guenther declined to share some details of the project when city councilors asked questions during a March study session.

“As a concept, it looks pretty cool and pretty neat, but there are just so many things we don’t know. We still don’t know what this tile process is about,” Tassone said. “Once you file a patent, you should be able to divulge what the heck it’s going to be and whether it’s really usable.”

Guenther, sounding irritated, said the mining company has provided city officials with more documents than typically required by the U.S. Securities and Exchange Commission and Canadian regulators. “Why would the city need more? We’ve given them thousands of pages, tons of data. There’s a limit, you know,” he said.

Guenther’s secrecy extends to how he would market the ceramic products in what one person in the industry described as a competitive business. And while Emgold said “numerous brick and tile producers” have contacted his company and are interested in sub-licensing his technology, he declined to identify any. Further, Emgold’s web site describes the ceramics-making process as a “patented technology,” but Guenther in a recent interview said the actual process is “patent pending.”

David Pressman is a patent lawyer in San Francisco and author of “Patent It Yourself,” which has sold more than 250,000 copies since 1981. “If you have a patent application, you have to tell how to make and use the invention. You can’t hold any secrets back,” he said. “The worse thing you can do is keep it a secret or your patent could be invalid. It has to be a patent or a trade secret. It can’t be both.”

Guenther called that nonsense, saying his withholding details is akin to Coca-Cola concealing its “secret recipe.”

Guenther calls his machine a hot vacuum extruder, which he said he invented in his garage using parts that he and others fabricated. He said the machine stretches 18 feet long and that he came up with the idea of making it after Emgold’s previous attempt to reopen the mine fizzled. He also said the machine, which became patented in April 2003, has been producing ceramics from Idaho-Maryland tailings, which he said existed from the 1950s, for the past few months in a 44,000-square-foot warehouse in Whispering Pines Industrial Park. He added that the manufacturing process is still in the research-and-development phase, that additional patents related to the project (including the manufacturing process) are pending, and that a machine to be built for commercial use will stretch to 27 feet.

Before production would become commercialized at the mine, Guenther said, he hopes to use hot vacuum extruders at coal-fired power plants and convert fly ash — the byproduct that remains from burning coal — into ceramics. He said he contacted one of the closest sources of fly ash, the power plant in Valmy, Nev., owned by Sierra Pacific Power, last month.

The Valmy plant is nearly 300 miles northeast of Grass Valley, along Interstate 80. In 1994, Sierra Pacific Power sought investors for a project that would have used ash to make aerated cellular concrete blocks. But the idea went nowhere, Sierra Pacific spokeswoman Faye Andersen said, and only a couple souvenir blocks remain at the plant from that endeavor.

In late April, Andersen said, someone from California called the plant manager with the idea of converting ash into ceramics. But the plant manager was busy, and the conversation was short, she said. “We have been contacted about fly ash, but we haven’t had any substantial discussions about it. In fact, our plant manager couldn’t even remember who called him.”

Guenther said he was the caller.

Emgold’s own investment packet talks about how this whole idea will “assist with the permitting of the Idaho-Maryland” and avoid “expensive impoundment” of mine tailings. The company has said the conversion of mine tailings is crucial to making the mine viable, which is why city officials say they need to know more.

Betty Riley of the Sierra Economic Development District, which studies the economics of Nevada County and surrounding counties, said she encouraged the city to look closely at Emgold’s business strategy. “Some of these things can be a little over ambitious,” she said.

The city of Grass Valley is now in the process of seeking a consultant to review Emgold’s business plan. Joe Heckel, the city’s community development director, said requests for proposals have been sent to three consultants, and one has so far replied. He said the City Council might hire a consultant at its May 24 meeting, at Emgold’s expense, and that some of the reviewed material will be kept confidential.

Seeking a business-plan consultant to a project is rare for the city, Heckel said. “Given the unique nature of the project and the size of that particular proposal, council wanted some financial assurances that the economics of the project are shown to be viable,” he said.

Emgold calls hot vacuum extrusion the Ceramext Process, and Ceramext is both the name of a limited liability corporation registered in Nevada and a trademarked name, according to Emgold’s Web site. It identifies Guenther as Ceramext general manager.

In the most basic terms, the hot vacuum extruder is a vacuum chamber mounted within a heating chamber, and a ceramic-forming chamber is mounted within the vacuum chamber, according to Guenther’s patent with the U.S. Patent and Trademark Office. A press within the vacuum and forming chambers would apply pressure to the ceramic material during the extrusion process, the document says. Extrusion is basically the process of “pushing out” a material.

Some of the best ceramic materials include muscovite mica, the document says. Such mica is found in gold ore and, according to Guenther’s patent, “the gold is preferably first extracted by commonly used methods such as by screening, gravity extraction, cyanide extraction, or other common methods without otherwise significantly changing the composition of the mica.”

The document goes on to say the composition of the ceramic material could vary: “In this regard, the mica or clay may contain a significant amount of other minerals, even as much as 40 percent or more, and still make a desirable ceramic product with the present apparatus and method.”

When the ceramic material is muscovite mica, the document says, the heating temperature could be as a high as 1,250 to 1,320 degrees Celsius, or 2,282 to 2,408 degrees Fahrenheit.

But Emgold’s own financial documents challenge the viability of the entire concept. Months after Guenther received his patent, the company’s Dec. 31, 2003, annual financial report — the latest audited annual report available — talked about the risks associated with the development of Ceramext. It notes that ceramics with “high strength and very low porosity” have been made. But, it adds, “the basic parameters of the process have not been studied and the process is far from production ready. In addition, the process equipment needed for commercial exploitation has not been engineered or demonstrated, and it is not available since the process is new.”

The report goes on to address issues that could arise during everyday operations, among them high energy consumption, which contradicts Emgold promotional literature that says the process is energy-efficient. “The feedstock going to the Ceramext process must be dry, therefore energy must be expended to remove all water from feedstock,” the report says. “The capital and/or operating costs for removing water from the feedstock may prohibit economic exploitation of the technology.”

Guenther, in response, said the process is energy-efficient compared to other ceramics-making processes.

Other possible obstacles, the report says, include the difficulty of processing non-uniform raw materials, the difficulty of getting “adequate plasticity” from the tailings so products can be formed, and the challenge of upsizing from a small test operation to an industrial operation. “The risk is that scaling from a pilot plant scale to a large production facility capable of processing 2,400 tons per day may be too expensive or may have intractable heat transfer problems,” the report says.

In response, Guenther said the process has evolved since that report. “However,” he said, “no venture is totally risk-free.”

Ralph Silberstein is a Grass Valley resident and a member of the Wolf Creek Community Alliance. He’s worried about the amount of natural gas needed to power the ceramics plant.

“If we’re going to take out tons of rock every day, and we’re going to melt it, what’s it going to take?” he said. “It’s a very open question in my mind. This is an unproven technology, so how can they say this can be safely done?”

Silberstein said he is personally opposed to the Idaho-Maryland project but that he doesn’t speak for the community alliance. The alliance hasn’t taken an official stance on the project as it looks into the mine’s plans to discharge millions of gallons of treated mine water into South Fork Wolf Creek.

The 2.1 billion cubic feet of natural gas a year Emgold says it would need can be converted into therms, which are heating units. The calculation that 2.1 billion cubic feet of natural gas could supply 25,000 to 50,000 homes is based on PG&E’s estimation that the average household uses 35 to 70 therms a month, depending on the season, climate and other factors.

“Energy is a big cost” in the production of ceramics, said Bob Hurt, who works for Dal-Tile, the country’s largest manufacturer of tile, as the Dallas-based company’s director of environmental health and safety.

“The cost for natural gas has almost tripled in the last three years, and it’s not getting any better,” he said. “But the other aspect is that there’s a fair amount of labor involved. And transportation. We market in every state and getting our product to those locations in a timely fashion is expensive.”

Dal-Tile has 250 of its own stores across the country and four regional distribution centers, Hurt said.

How Emgold would get product to market is still up in the air, Guenther said. “We are working with both tile distributors and manufacturers, and considering marketing our own.” He said hundreds of tile and brick companies have contacted Emgold about sub-licensing the patent-pending technology, but just which ones is “confidential.”

Guenther said his goal is to take extrusion machines to other locations, such as the Valmy plant to make ceramics, before the process is used at the Idaho-Maryland. It’s “more economical to do manufacturing at the source of the material” and “we’re looking at doing it all around the world.”

When it comes to recycling mine tailings, the idea has been tried before with varying outcomes.

About 10 years ago, Montana State University students managed to convert a mix of fly ash and tailings from the Mineral Hill Mine, an underground gold operation just outside Yellowstone National Park, into bricks.

Jerry Stephens, a Montana State associate professor of civil engineering, said the project had some success using a mix of 60 percent tailings and 40 percent ash, both of which are fine powders. Heat wasn’t used; instead, the fly ash served as a binder, like Portland cement, and a chemical reaction hardened the mixture, Stephens said.

The bricks were tested for heavy metals and toxins such as arsenic and found to be safe, Stephens said. But the marketability of the bricks proved elusive. “There’s no market close by, and one of the biggest parts of the building expense is transportation,” he said. “Economically, it didn’t offer any great attraction, I guess.”

The project was funded with $10,000 from the mine and The Wilderness Society, a nonprofit conservation group.

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“We had a lot of interest from around the world on what he had done with $10,000,” Stephens said. Calls came from as far as Australia and as close as Montana and California, he added.

Ray Rasker of the Sonoran Institute, another nonprofit conservation group, was working for the The Wilderness Society at the time and helped come up with the idea of recycling tailings. The idea didn’t catch on in the private sector, he said. “They looked at who would have been a potential client, and makers of bricks were a big potential client, and when they approached them, they said, ‘We already buy a cheaper product.’”

Newmont Mining Corp., based in Denver, is the world’s largest gold producer and owns the mineral rights to the Empire Mine, which sits next to the Idaho-Maryland and remains California’s No. 1 underground gold producer even though it closed in 1956 — as did the Idaho-Maryland, still the state’s No. 2 underground producer.

“I’ve never heard of that, to be honest,” Newmont spokesman Doug Hock said of converting tailings into tiles or other ceramic products.

When it comes to handling tailings, Hock said, “My experience is that the best thing you can do with it is you put a soil application on it and vegetate it and reclaim it.”

Hurt said Dal-Tile doesn’t use recycled material in its tiles. He also said he’s never heard of mine tailings being used in ceramics and that most manufacturers follow the same processes. “In some aspects it’s relatively simple,” he said. “You’re taking clay and mixing it with water, and then firing it in a kiln; in a simple sense, that’s really what happens. … Everybody uses the same stuff; it’s just different combinations.”

Tile manufacturers seek a competitive edge in the details of production, Hurt said. Dal-Tile’s kilns are finely calibrated to fire specific materials and that any change in the content of the ceramic material requires recalibrating the kilns and conducting a fresh set of test production runs. Manufacturers try to limit the need for recalibration to keep down production costs, he said.

“When you bring in a new ingredient, you need to develop new kiln curves,” Hurt said. “It’s possible to do, but most of the manufacturers don’t want to do that unless there’s some real perceived economic advantage to doing that.”

Emgold mentions the risk of using non-uniform materials in its Dec. 31, 2003, report. “The risk is that non-uniformity of the waste raw materials will make process control difficult,” the report says.

It goes on to talk about the risk of using impure materials: “The risk is that impurities will cause complications. Calcium carbonate or other carbonate will cause problems due to generation of (carbon dioxide) gas in the extruder. Sulfur compounds could cause pollution problems and/or extruder material problems. Residual carbon would compromise plasticity.”

People have different takes on the environmental and safety issues related to converting tailings into ceramics, but some could only speculate because they had never heard of the idea. A key concern is arsenic, which is naturally occurring in gold ore, and whether it would become part of ceramic products.

Tailings are usually highly concentrated in heavy metals, said Tom Myers, a Reno hydrologist who worked in the mining industry for several years before becoming a consultant to community groups and local governments.

“I have to believe that cyanide would get out but not the arsenic,” Myers said, noting that cyanide usually breaks down chemically. But, he added, “Really you have to look at the tailings, the geochemistry of the ore.”

Guenther said any arsenic would be removed during the chemical process in mining that removes that last remnants of gold. “We have no significant arsenic in our ore body,” he said.

Myers struggled to think of other instances where tailings were used for another purpose. He pointed to the case of a copper mine in Yerington, Nev., whose tailings were used as a base material on driveways.

“But when you drive on it, it grinds,” he said. “Now they know the dust has high levels of uranium and arsenic and other stuff you probably shouldn’t be breathing.”

Hurt said any heavy metals in Dal-Tile products basically become encased in glass after they’re removed from kilns. “The only heavy metals would be from trace amounts that are naturally occurring,” he said.

Jim Kuipers is a mining engineer in Butte, Mont., who, like Myers, once worked in the industry but is now a consultant. He said Emgold has an intriguing idea with the ceramics project, but he questioned whether the products would be safe. “If it becomes encased (in glass),” he said, “I’d still be concerned because essentially you don’t have a guarantee that the encasing is going to function the way it’s supposed to.”

John Woods has been watching the Canadian mining industry for 20 years as editor and publisher of Stockwatch in Vancouver. He didn’t know the details of Emgold’s ceramics plan. But, he said, operations that promote the use of a patented technology are “usually not greeted warmly by the mining industry. They’re greeted exactly the same way some alchemists were greeted in the 1400s.”

Woods also doesn’t specifically recall hearing of the name Emgold or its previous name, Emperor Mining. But he did recall hearing about Emperor’s concept in the 1990s of bottling the water drawn from the Idaho-Maryland’s shafts hundreds of feet below ground, presumably cleansed of the arsenic, iron and manganese down there.

“That was one of my favorites,” Woods said of the bottled water idea. “That was just splendid.”

In discussing the bottled water idea, Guenther quickly distanced himself from it. “I’ve always been opposed to it. I didn’t think it was a viable idea,” he said. “The whole thing is a marketing thing, anyway. Even if it were legal, I think it could get in the way of mining operations. I think the water is clean enough, but I don’t think it was an economically viable idea.”

So now, Emgold says it is looking to tiles instead of water to ride out gold price undulations. The company hopes to start mining operations in 2007, and round-the-clock ceramic operations two years after that. An extensive review process lies between now and then. Emgold needs permits from city, state and federal agencies.

If Emgold clears those hurdles, mining could begin, and it has said mining operations would last 20 years. But after Emgold extracts its last ounce of gold, Guenther said in an interview, the mine could continue to operate several more years, “indefinitely,” as a ceramics plant.

But that isn’t the timeline Mayor Tassone said he understood. It’s also, he said, a reason why city officials need to see a business plan.

“My understanding is that, after the mining is done, I didn’t know they were planning on closing the tile plant as well,” the mayor said. “You want to provide jobs to the community, but 20 years is not very long.”