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In the Mother Lode, a new gold rush

A Canadian company wants to reopen a mine in a part of California that has long attracted fortune hunters.

August 23, 2009|Alana Semuels

SUTTER CREEK, CALIF. — There's still gold in them thar hills.

A microscopic fleck of it glitters in white rock visible to explorers 600 feet beneath the grassy hummocks of Sutter Creek, a tiny mining town that was once a hub in California's gold rush.

"You see it? Right there," says geologist Scott Briscoe, wading across a subterranean puddle and pointing to a yellow chip no bigger than the dot of an "i" just visible in the white light of his headlamp. "If you can see it, it's pretty rich."

Briscoe is gathering samples for Sutter Gold Mining Inc., a Canadian firm that wants to reopen this mine in an area that has drawn fortune hunters for more than a century. Company tests suggest there could be hundreds of thousands of ounces of gold in this mineral-rich chunk of land, worth hundreds of millions of dollars if the metal stays near its current price of about $953 per ounce. That's made Sutter Gold determined to revive California's gold mining heritage.

If the company succeeds, the Lincoln project, as the mine is called, would be one of the few operational underground gold mines in California. It would be the only working mine in that district of the Mother Lode, the rich veins of gold-bearing ore that snake under California Highway 49 from Nevada City to Mariposa.

Locals say the mine would provide a boost to Amador County, a pokey rural outpost in the northeastern part of the state that's dependent mainly on tourism and casinos.

"It's hard times around here," said Pam Starkey, a bartender at the Fargo Club, a bar in nearby Jackson that, like Sutter Creek, relies primarily on visitors.

The big challenge, Sutter Gold officials said, is complying with California's tough environmental regulations while finding enough investors willing to gamble that the price of gold will stay high enough to make all the effort pay off. The company so far has secured 34 permits from 16 agencies, requires about a dozen more and is still more than a year away from a potential launch, according to its president, Clayr Alexander. It's already spent about $30 million to refurbish the mine's underground infrastructure and assess the amount of gold in the ground, among other tasks.

"Investors say 'Oh, you're in California,' and it scares them," Alexander said. "But we're going to prove them wrong."

The push to reopen the mine picked up momentum last year came when RMB, a unit of South Africa's Rand Merchant Bank, bought 49.9% of the common shares of Sutter Gold from U.S. Energy. RMB recently devoted $4 million more for testing and engineering work.

The price of gold has risen steadily since 2000 and has more than doubled since 2004. That's because gold does well when the global economy is shaky, according to Jeffrey Nichols, managing director of American Precious Metals Advisors, a New York consulting firm. Investors have also taken a shine to gold exchange-traded funds, increasing demand, he said.

Asia's growing prosperity is likewise fueling desire for gold jewelry, a traditional store of wealth in India and other developing nations, said Luke Popovich, a spokesman for the National Mining Assn.

Output in some mines in South Africa and the United States, both major gold producers, is beginning to dwindle. That's prompting mining companies to reexamine areas in Latin America and parts of the U.S. such as Nevada and Alaska, where gold has been found before.

In California, the high price of gold has also attracted individual prospectors who pan in rivers and dig in abandoned mines on their own. But few companies have pursued the costly process of reopening the underground mines that once produced millions of ounces of the metal.

Mining in Sutter Creek began a few years after James W. Marshall discovered gold in 1848, setting off a rush in U.S. territory that soon became the state of California. Miners initially clustered around John Sutter's sawmill near Coloma, panning in rivers or using sluice boxes to sort through rocks to find gold.

But once gold was discovered in the quartz near Sutter Creek, entrepreneurs opened hard-rock mines there, digging beneath the ground. Between 1852 and 1952, about 2.3 million ounces of gold were extracted from land there that Sutter Gold now controls.

Many of California's mines closed in 1942 after an order from the War Production Board determined that extracting gold was not contributing to the war effort. Reopening them proved costly because many of them had become filled with water. The industry that made California the Golden State employs only a few hundred workers today.

Some of those old mines, including one known as the Sutter Gold Mine, whose entrance is between Sutter Creek and Amador City about 45 miles east of Sacramento, are used primarily for tours recounting the long history of gold mining in the state.

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