The end of the Gold Rush 

The decade-old fight against turning the wedge of land seven miles east of the town of Lincoln-famously, the former home of confessed Unabomber Ted Kaczynski-and within casting distance of the headwaters of the Blackfoot River-a legendary trout stream-into one of North America's largest open-pit gold mines has been nothing short of ferocious.

It's a battle which has gone on so long that the slogans used to drum up opposition to the mine have become clichés. Such is the case of the bumper sticker which declares "The Blackfoot is more precious than gold." And the articles and films which have targeted the mine in an effort to save the waterway and the surrounding landscape-including projects by actor Robert Redford, Missoula resident Annick Smith and Western Montana author Richard Manning-have pretty much marketed the state of Montana as having a soul trapped in its landscape, and established the Blackfoot River as the region's spiritual bloodline.

Ironically, if the mine is stopped, it may not be the result of the constant attack from environmentalists. More to the point the state's crack down on the project, has compounded the shaky finances of Canyon Resources Corp. Despite company protests, many critics today believe that Canyon Resources, which has taken the lead on the project in recent years, does not have the financial or organizational stamina to guide the mine into production through the mass of bureaucratic legalities.

It's not like there haven't been troubles before for the McDonald Project, which is also known as the Seven-Up Pete Joint Venture. In fact, at nearly every turn there have been obstacles that could have blown the wheels right off the permitting rig.

Besides the fierce opposition from environmental and other grassroots groups, there has been the chronically depressed gold market with prices hovering at a 19-year low. The state's two lead agencies on the project, meanwhile, went through chaotic and disruptive reorganization when the permitting process was just getting under way. Then, a year ago, Phelps Dodge Co.-the McDonald Project's original champion-sold its nearly three-quarters share in the Seven-Up Pete to Canyon Resources, its junior partner.

At the time, Phelps Dodge said it was pulling out to focus its operations on copper mining in the Southwest. Nonetheless, Phelps Dodge's departure, right when costs for simply getting a permit for the mine started entering the stratosphere, meant the project was left in the hands of small and financially wobbly Canyon Resources.

By all accounts, the summer of '98 hasn't been good for Canyon Resources Corp and this fall isn't shaping up any better.

Although Canyon officials flatly deny it, the mine that would pull this company out of the minor leagues and place it firmly among the big boys who have been setting the industry's gold standard is in serious jeopardy. That may mean problems not just for the company but for the town of Lincoln and the entire Blackfoot Valley, where well-paying jobs are sorely needed.

In July, the state government came down hard on Canyon Resources for missing three payments on the required Environmental Impact Statement-a project which has taken two years and over $2 million thus far. On July 2, Montana's Department of Environmental Quality, citing this debt, sent out a stop-work order to Morrison-Maierle Inc., the lead contractor on the EIS.

A couple of weeks later, the mine laid off nine of its 12 employees in Lincoln. Then, in September, the DEQ and Morrison-Maierle filed a lawsuit against Canyon in an effort to recoup the $419,789 owed to them following the missed payments from earlier in the year. DEQ officials also asked the company to cough up yet another $570,000 for a security bond to cover the cost of finishing the EIS.

Then came the admonishment from the DEQ that the company's reclamation efforts at its other cyanide heap-leach gold mine near Lewistown were far from adequate. The DEQ, in turn, leveled fines of $330,000 against the Kendall mine for illegally discharging pollutants into nearby waters.

Not yet finished, state regulators put the company in an even more dire situation two weeks ago. The Department of Natural Resources and Conservation decided that because Canyon Resources hadn't paid its EIS bills and work was not proceeding, the mine was in violation of the lease extension the agency granted back in 1994.

It was an extension that allowed the mine's original 1996, 10-year lease to be placed on hold until the EIS was finished. But the DNRC pulled the extension, leaving Canyon only 17 months to get the mine into production-if workers don't start digging soon, the company risks losing the lease altogether.

A company spokesman acknowledges Canyon's "cash flow problem" and says there are "serious discussions" with other companies taking place who might pick up the slack. But so far, there have been no takers. As things stand now, the process of permitting the mine is going nowhere.

And no one is sure when-many doubt if-the process will start up again. Everyone agrees that the permitting process as it now stands doesn't provide enough time, even if work were being done on the EIS. If the assessment doesn't get back on track, the the company could face stiff monthly penalties-to the tune of $150,000 a month-until the mine goes into production.

(On top of all of these troubles, environmentalists led by the Montana Environmental Information Center managed to get an initiative on the November ballot aimed squarely at stopping the McDonald gold mine.

Initiative 137 would ban all new cyanide heap-leach mines like the McDonald Project. While some are saying the initiative is illegal and would amount to a "takings" that would cost the state dearly, the threat of such a law being passed seems to have put the mine even further on hold for the company until the matter is decided at the voting booth next month.)

Bigger isn't always better

Any reasonable discussion of the Seven-Up Pete Joint Venture must include size and numbers. If the mine does get built, eight square miles of land would be moved to create an open pit. The pit, which Canyon Resource proposes be turned into recreational lake once the gold has run dry, would be 1,200 feet wide and 700 feet deep, which makes it comparable to the Berkeley Pit in Butte, a giant leftover copper mine.

That comparison gets made all the time by environmentalists, but the Montana Environmental Information Center has come up with a different way of looking at the project. According to maps put out by the group, which is also responsible for I-137, the entire city of Helena, a town about half the size of Missoula with a population of about 25,000, could fit into the mine.

If the mine were transported closer to the place where it is most reviled-on top of Missoula-it would cover about two-thirds of the Garden City, where just over 50,000 people currently dwell; from a gradually widening stretch of land from South Avenue, which runs through the middle of Missoula's sprawling commercial district, to the Interstate 90 highway at the north end of town where it runs to Reserve Street on the western edge of Missoula proper.

"There is absolutely no way they can produce a mine of this size without permanent harm to the Blackfoot," says Bonnie Gestring, a community organizer with MEIC. "There is a tremendous, overwhelming amount of waste. You'll have a mountain left behind. It's not just the cyanide. The cyanide is a vehicle to allow such low- grade ore to be mined."

As for the numbers, they go something like this: According to Canyon Resources 1997 Annual Report, there are 9.3 million ounces of gold and 10 million ounces of silver at the site. It's mostly low-grade ore averaging as little as .019 ounces of gold per ton of hillside. The company says the gold can be produced profitably with prices as low as $300 an ounce

Gold prices meanwhile have been hovering around $275 to $290 per ounce for most of the last year. Once up and running, the mine would produce as much as 450,000 ounces of gold each year for at least a dozen years.

By contrast, the numbers Canyon is quick to peddle are that the mine will employ 387 people. The company says that 70 to 80 percent of those jobs will likely come from the region. Annual pay for those miners should average $40,000 a year plus benefits, according to the company.

The state's take would be somewhere in the vicinity of $20 million in property taxes. Montana Tech in Butte would would receive approximately $3.4 million a year in royalties over the life of the mine because the mine sits mostly on state-owned land dedicated to the school.

That is, if the mine ever gets built.

At this point, the single ray of light for the company appears to be the steady rise in the price of gold in the last couple of weeks. As of Monday, the precious yellow stuff was bumping the $300-an-ounce mark.

No one can say for sure why gold prices have been relatively low. Since February 1997 when the price was $406 an ounce the price has been in a steady decline-a far cry from the $600 -an-ounce days of the early 1980s.

Paul Bateman of the Gold Institute, a trade group based in Washington, D.C., says that economic troubles in East Asia, weak world demand and a strong U.S. dollar contribute to gold's performance of late. But because of the stock market and a fall off in supply, Bateman believes the conditions are right for the price to continue its ascent.

"Gold has traditionally been a haven for investors that are worried about inflationary pressures," says Bateman.

Until the price goes up and stays there, however, company officials must put on a brave face and admit things have gotten difficult. Stock prices for the company have plummeted from nearly $2.50 a share a year ago to less than 50 cents a share last Friday. Last year the company had its highest take ever at $28.9 million, but still ended up losing $5 million.

According to its financial report, the losses came mainly because the company's Briggs gold mine in California was just starting production last year, and, at the same time, reclamation on the Kendall mine was in full swing.

Still, they say, the McDonald Project is still a viable project whether or not a partner is found. "These are tough times, there's no denying that," says 7 Up-Pete spokesperson Bill Snoddy. "[The price of] gold is low but it seems to be bouncing back. That's been one of the big factors affecting our ability to find a partner."

For the record, Snoddy asserts that the company has no intention of walking away from the project. The bottom line, says Snoddy, is that the McDonald "is one of the most important assets" Canyon Resources has. He says his bosses are as committed to pursuing development as ever while paying back the money they owe.

Snoddy is a good natured man, who comes across as an accommodating sort almost immediately. During an interview with the Independent in his office in Helena, he pulls out a thick white binder that contains all the articles written about the mine from 1989 to 1996. Then he pulls out a second even thicker binder that contains all the articles for 1997 alone.

Three hundred and twenty-five articles, he says, indicating the folders-and it's a safe bet that Snoddy is quoted in most of them. With the amount of media attention on the mine of late comparable to a small waste rock pile of its own, Snoddy's name is becoming a household name in this state.

Despite his friendliness, Snoddy remains a public relations man first and foremost. He can put a spin on things that only a PR person could get away with. When asked about a recent statewide poll that showed 50 percent in favor of Initiative 137, 29 percent against it and 21 percent undecided, Snoddy replies: "The numbers, I find, are encouraging. Barely 50 percent of the populous at this point feel that I-137 would be a good thing. There's still, campaign-wise, a lot time left before the election."

But for all Snoddy's apparent optimism, many involved in the permitting process doubt Canyon Resources has either the money to spend or the time to hang on for more favorable conditions. As one source put it, "It's a very small dog trying to take on an awful big bone."

All that glitters...

From her crammed office on the second floor of the Best Western Colonial Inn in the state capital, the executive director of the Montana Mining Association Jill Andrews agrees with Snoddy on a number of things.

The one topic though, perhaps the crux of the whole issue, where Andrews parts with Snoddy is this: She doesn't believe that Canyon Resources will find a partner or that the company has the financial oomph to develop the mine on its own.

"Canyon Resources is a good little industrial company. But they got in way over their heads," she says.

If Canyon were further along in the permitting process finding a partner might be a different story, says Andrews. But since there is still a long ways to go, any company that comes on board is going to have to pump some serious cash into the project-with no guarantee that it will be approved in the end.

Unlike Paul Bateman, Andrews believes the price of gold on the horizon looks less promising. "We think that the price of gold is going to remain flat for about a year."

Spokesman Snoddy says, "Certainly the cash flow problems that Canyon Resources has been having have an effect. These things all go together to makes things more challenging for us."

Snoddy remains optimistic that his company could possibly pull off developing the McDonald mine on its own. "If the price of gold were to rebound," he says, "the ability to secure gold loans or other financial mechanisms is going to become much easier. And if that should happen Canyon could very well have the ability to finance construction and operation."

While freely admitting the company is in a bad spot due in large part to its small size, Snoddy also believes the state, through its recent lawsuit and Byzantine regulations, has substantially exacerbated the problems.

"Filing the lawsuit is going to consume more of Canyon's resources defending itself in court that are not going to be available to repay the state of Montana or Morrison-Maierle. So it's kind of a Catch-22.

"Legally the state of Montana had 375 days to prepare an EIS and a self-proclaimed set-in-concrete budget of $710,000. McDonald has continuously extended both the time and the money, up to $2.5 million now, and two and a half years now. It's projected to cost another $2 million to $2.5 million more to finish it.

"There needs to be some boundaries, some sidelines and there has to be an end zone so that at some point you're done. So it isn't an open-ended go-on-forever-process."

When it comes to the Department of Natural Resources and Conservation's decision to pull the extension on the mineral leases and restart the clock ticking on the original lease, Snoddy is equally adamant that the fault lies with the state and not Canyon Resources.

"DNRC, quite frankly," he says, "overstepped their bounds. They have unilaterally decided to void leases. A power they don't have."

The Mining Association's Andrews seconds Snoddy's argument that the process of permitting mines in this state is highly flawed and that in many respects the McDonald Project is getting the proverbial shaft. "I think we could tighten up the process," she says. "If the state really intends to develop mines here, then it could be done much more cost effectively.

"Miners understand the word no. And if you're not going to allow mining than just say no and we'll move on. Don't jerk around a company like McDonald has been. It's just not fair."

The state of things

Bob Barry is a tall rail of a man with a bushy, graying beard. He has a tendency to speak slowly and thoughtfully. Barry is an impact specialist with the Department of Environmental Quality, and he's also in charge of coordinating the McDonald Environmental Impact Statement.

As you can probably imagine, Barry has a different perspective from Snoddy and Andrews on how the process has gotten to this point. "The state's position is pretty clear. We've received a legal permit from a legal applicant. We have a legal obligation to analyze whether or not the mine can be operated within state laws and regulations," he says.

While that sounds cut-and-dry, Barry points out that it really isn't. Especially on a project that is as large, complex and politically sensitive as this one.

"This is a big, big project," says Barry. "The location has a lot of potential for a number of environmental impacts. It's not an easy place to try to put a mine."

"Environmental considerations aside, it's not a simple project to plan out. And it came along right when you had reorganization of the state agencies. Assignments were in flux. Changes were going on that made an already complex project even more complex."

According to Willis Wetstein, a senior consultant and contract manager with Morrison and Maierle, Inc., the size of the mine and the controversy it has generated slowed the permitting process down considerably. "This EIS is probably the largest EIS we've worked on and probably the largest in the state in terms of mining. The more controversial the mine becomes the amount of data [needed] increases," Wetstein says.

From a strictly aesthetic standpoint, the two hills and surrounding area that would become McDonald mine are nothing particularly special. Covered in bunchgrass and second-growth timber and encircled by more riveting and spectacular valleys and peaks, the hills are easy to miss as you whiz by within spitting distance on Route 200.

Give the area a closer look and you'll see not a mile distant from the hills a winding ribbon of cottonwoods, their leaves this season a faded yellow, intermingled with aspens that are already bare. It's only then that it becomes obvious why the fight to stop the mine as been so damn fierce.

It's not the hills themselves, of course, but their proximity to the headwaters of the Blackfoot River.

The only thing that the dozen or so people interviewed for this story-from company PR front man to hard-core environmentalist-agreed on is this: Regardless of what happens with Canyon Resources or even Initiative 137, the fight over mining this deposit isn't likely to go away.

The gold is there. It's in the ground. It's always going to be there until we go in and get it. It's a fight that will be left largely to the mercy of the swing in gold prices.

The hill near the town of Lincoln don't look like anything special, but the river that runs through this valley, Norman McLean's beloved Blackfoot, has inspired environmentalists to fight against the proposed McDonald gold mine.
Photo by Tim Westby

The Lincoln office of the Seven-Up Pete Joint Venture has been quiet since nine out of 12 employees were laid off in July.
Photo by Tim Westby

Canyon Resources still holds a lease for the state lands where the proposed Seven-Up Pete Joint Venture could be dug, but that won't be true for long if the company doesn't come up with the cash it owes the state.
Photo by Tim Westby

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