When Golden Queen Mining Co. Ltd. releases its second-quarter earnings this week it will show something that has never appeared before: revenue. Starting in March, the Vancouver company has made what are called dore bars, a mix of gold and silver. The precious metals are taken out of a mountain in the desert of the Antelope Valley south of the community of Mojave. Golden Queen Chief Executive Thomas Clay said that 2016 will be a transformative year for the company his family has invested in since it went public in the mid-1980s. “After 30 years of scratching around out here, getting the plans together, the permits together, getting the thing built, we are now an operating company,” Clay said. If Golden Queen’s plans stay on track, the company will dig the precious metals out of the desert over the expected 11-year lifespan of the mine on Soledad Mountain. Mining began late last year and as of early June, the company had extracted 2,370 ounces of gold and 26,000 ounces of silver. Sales of the dore bars began several months ago. At a price hovering about $1,320 an ounce for gold, that means Golden Queen already has mined more than $3 million worth of that metal alone. Silver prices have ranged from $15 to more than $20 an ounce, which has brought Golden Queen about $500,000. “If we had to pick a year to start producing, 2016 looks very good so far,” Clay said. Golden Queen is a publicly traded company controlled by the Clay family and listed on the Toronto Stock Exchange in Canada and the OTC Market in the United States. The mine is the company’s only asset, which since 2014 has been owned by a joint venture between Golden Queen and Gauss LLC, which is partly owned by the Clay family. The company acquired the mine in 1985 and over the next 27 years spent roughly $65 million for such things as metallurgical tests and engineering work, environmental studies and extensive drill programs. Since 2012, Clay said, the company has invested another $120 million for the mining infrastructure, trucks, loaders and other general operating costs. The company is fully permitted to remove 14 million tons of rock material a year. Out of that an expected 75,000 ounces of gold should be extracted, as well as 10 times that amount in silver. At today’s prices, the dollar value of the gold haul for the life of the mine would be more than $1 billion. The rock left over from all that digging can be sold to become aggregate used in the construction industry. “That is one of the unusual things about this project: We are not just a metals mine,” Clay said. “We are also an aggregate quarry that can go for decades.” An immediate local benefit from the mine is in the jobs it offers. Golden Queen has 155 employees and will finish the year with about 175, Clay said. Richard Chapman, the chief executive of the Kern County Economic Development Corp., said that in addition to the jobs at the mine itself, there are indirect benefits. “The money that is paid through the mining jobs creates retail jobs and supply-cluster related jobs,” Chapman said. The single largest contingent of workers came from the Briggs gold mine in nearby Inyo County, which ceased mining ore last year. That dovetailed nicely with the ramping up at Golden Queen, Clay said. Otherwise the company has had success finding the skills it needs from locals as well as those coming from out of state, he added. Kern County has its share of oil production and with layoffs that continue to occur as the price of oil stays low, there is the potential those workers could move over to the mine, Chapman said. “This project comes at a great time in terms of transferability of skills,” he added. While Clay said he did not know of specific instances of hiring former oil workers, he agreed that with some skills there is overlap between the two industries. “I think a lot of people in the mining sphere are committed to the industry,” Clay added. Long mining history The 31-year-old Clay jokes that he’s been alive for as long as his family has been investing in Golden Queen. “I heard about this project around the dinner table when growing up,” said Clay, who lives in New Hampshire. Mining has been a longtime activity in Kern County, with a history dating back to the late 19th century. It is the location of the largest borax mine in the world, owned by Rio Tinto Group, a British metals and mining corporation. Abandoned gold and silver mines dot the desert. The Soledad Mountain site was an active mine throughout the 1930s until 1943 when it was shut down during World War II because gold was not considered an essential element. The operations then were all done underground in tunnels burrowed into the mountainside targeting specific veins of gold. Some of the structures from that earlier period remain intact. After Golden Queen’s acquisition of the mine there were plans to re-open it in the 1990s. Permits were in place but were scrapped after gold prices significantly dropped. Then early last decade the company started seeking new permits, which were authorized in 2012 by the county, federal government and other agencies. “It can take some stamina to keep a company going through that period and creating no revenue; it goes without saying,” Clay said. Clay is a graduate of Harvard University and Oxford University and serves as a director of Clay Mathematics Institute, a nonprofit in Peterborough, N.H. that gives out awards and sponsorships to mathematicians. He became a director of Golden Queen in 2009 and took over the chairmanship from his father, Boston businessman Landon T. Clay, who’s now 90, in 2013. Two years later, Thomas Clay became chief executive, replacing Lutz Klingmann who left after 14 years with the company. Clay said he visits the mine between three and four times a year but otherwise leaves it to Bob Walish, chief operating officer, to take the lead on what needs to be done. “The operating decisions are made entirely here from Mojave,” Clay said. There are currently two pits from which the ore and waste rock are removed on the northwestern side of the mountain, closest to the processing plant. Gargantuan trucks capable of carrying 100 tons of rock dump the material into a high-pressure grinding roll, a machine that uses two rollers rotating against each other to crush the rock into small chunks. After further crushing, a conveyor belt transports the crushed material to a leach pad where it is saturated with water containing cyanide that dissolves the gold and silver out of the rock. The gold and silver then flow by gravity to an adjacent plant where they eventually are formed into the dore bars. The bars are sold to refineries where the gold is separated from the silver and the metals are further processed. Golden Queen faced a 30-year history of challenges to get to this point, Clay said, including California’s tough regulatory environment for mines, the up and down cycles of the economy and the gold market, specifically. “We knew that this was a project of merit to the community, to our regulators and it gave us the confidence to stick it out,” Clay said. Slowed by snail One potential complication for Golden Queen’s mine seems to have been avoided and shows that a heavy industry like mining doesn’t have to be an enemy to environmentalists. In January 2014, the Center for Biological Diversity filed a petition with the U.S. Fish & Wildlife Service to list the Mojave Shoulderband snail as a threatened or endangered species. The shoulderband snail is found in only one place in the world – 7.5 square miles on three mountains in Kern County, including Soledad Mountain. Tierra Curry, a senior scientist in the Portland, Ore. office of the environmental non-profit, said the snail cannot live elsewhere because it is dependent on the microclimate there. Since the petition was filed, the center and Golden Queen have established a cordial working relationship with the goal to save the snail while allowing the mining operations to continue. And the mining company has been proactive with taking steps to not destroy habitat that the snail may gravitate toward. For example, there are piles of broken rocks around the site that were going to be cleared away but instead have been kept in place, Clay said. “We are appreciative of their willingness to set aside some sites where the snail occurs and spare them from the mining operation,” Curry said. Presence of the snail on Soledad Mountain came as a surprise to both Curry and Golden Queen. A final determination whether the shoulderband snail is protected by the Endangered Species Act is not expected until next year. In the meantime, the company and center are working, along with Fish & Wildlife, on a conservation plan for the snail. The first step is to find out exactly where the snail is located, which can only be done during the winter months when rain brings the mollusk to the surface. “We have a survey plan set up for November through February and we are hoping to use that as the first real opportunity to get good scientific data on range and distribution,” Clay said. The positive working relationship with the center is the opposite of what tends to happen between industry and environmental advocacy groups who take their battle to court with lawsuits and counter-lawsuits. Curry added she was happy with the direction things were taking with Golden Queen. “It sets an example that conservationists and business interests do not have to be on opposite sides of the spectrum when the parties are willing to work together,” Curry said.
Gold Mine Times the Market
