June 18 (Bloomberg) -- It’s not just gamblers, celebrity chefs and brides-to-be that find Nevada irresistible. About 400 miles north of the Las Vegas strip, the world’s two biggest gold producers are doing some prospecting too.
Even after more than a century and a half of exploration, Barrick Gold Corp. and Newmont Mining Corp. say there’s plenty of hidden gold still to be uncovered in Nevada, which already accounts for a third of their output and produces more of the metal than South Africa and Chile combined. The miners are refining exploration techniques, while looking deeper and in areas they’d previously dismissed to find new resources.
“In a lot of ways, even as mature as northern Nevada is, it’s still young from a discovery standpoint,” said Doug Livermore, Newmont’s regional project director for North America. The state accounts for more than 6 percent of global gold production.
With the 28 percent drop in gold prices last year forcing miners to look for lower-cost ways to increase output and cut exploration budgets, companies such as Barrick and Newmont are focusing more on existing holdings. Nevada’s deposits also offer lower investment risk than mines in less politically stable regions of the world.
One of the two potential new mines that Greenwood Village, Colorado-based Newmont is considering is in Nevada. The deposit, Long Canyon, was found in a rock formation that geologists didn’t expect to contain gold, Livermore says on a mid-May drive through the snow-dusted hills of northeast Nevada. It’s also evaluating a new mine in Suriname.
Newmont is also sinking a new shaft to expand its Leeville mine in Nevada. The company’s been operating in the state for about 50 years, said Tom Kerr, the miner’s head for North America, and “we actually believe that we’re going to be there for another 50 years.”
Newmont and Barrick operate multiple pits and underground operations in Nevada. They’ve tried to merge several times to reduce costs and overlaps, most recently this year, but the talks disintegrated in April. Barrick shares have slipped 2.6 percent this year through yesterday, while Newmont’s have gained 2 percent.
A discovery in Nevada may be more valuable than a similar deposit in riskier regions, said Pawel Rajszel, a Toronto-based analyst at Veritas Investment Research.
“I’d much rather put my money or my clients’ money into something that has a history of low volatility,” he said. “I’m willing to pay more and investors should be willing to pay more for the same ounce in Nevada” than somewhere else.
Gold futures have gained 6.1 percent on the Comex in New York this year. The price rose 0.3 percent to $1,275.80 at 4:30 p.m.
Barrick’s efforts to find and develop new deposits are focused on Nevada, especially a 15.6 million-ounce trove that Chief Executive Officer Jamie Sokalsky calls one of the world’s top exploration finds of the past decade. The Goldrush deposit is just 6 kilometers (3.7 miles) from the company’s Cortez Hills mine, on the other side of a mountain. Concealed under rock and dirt, it was impossible to spot with traditional techniques.
“We’ve had prospectors running around here since the 1850s,” said Mark Bradley, a Barrick geologist who helped find Goldrush. “The obvious near-surface deposits were found a long time ago.”
Most of the exploration in the past only went about 100 meters (328 feet) to 200 meters deep, Bradley said in an interview at Cortez Hills, where he’s chief exploration geologist.
That explains why Goldrush remained undiscovered through multiple owners, including Homestake Mining Co., which found in the 1980s low-grade ore that couldn’t easily be processed then and discarded the prospect.
Interest revived in the early 2000s under Placer Dome Inc., when geologists reconsidered some areas they’d previously discounted. Drilling in an area known as Red Hill turned up evidence of deeper gold, but the prospect was overshadowed by the discovery of Cortez Hills, said Bradley.
Barrick bought Placer Dome in 2006. Drill results from two years prior piqued some interest; more drilling and detective work led to initial resource estimates that were “kind of interesting,” but not enough to get excited about, recalls Rob Krcmarov, Barrick’s senior vice president for global exploration.
That changed in 2009, when the company needed a new water borehole and chose a site about two kilometers south of the Red Hill deposit. Barrick used the opportunity to drill deeper and test for mineralization, turning up high grade ore similar to rocks from Red Hill.
“That was the turning point,” Krcmarov said in an interview on a mountainside overlooking the project. “I don’t think we’ve found the end of this one.”
Operating in Nevada still carries risks. Barrick has faced legal challenges to Cortez Hills from American Indian tribes. And the state has proposed higher taxes on mining companies in the past.
Barrick and Newmont aren’t the only groups seeking gold in the state. Waterton Global Resource Management Inc., a Toronto- based private equity firm, acquired Great Basin Gold Ltd.’s Hollister mine and Esmeralda mill and also made a hostile bid in February for Chaparral Gold Corp., an exploration company with assets in Nevada.
“We know that there’s a lot more gold to be found here,” Barrick CEO Sokalsky said last month. “Nevada is one of the best places in the world to mine gold.”