11/23/97

KUFM / KGPR

T. M. Power

The Risks versus the Rewards of Mining

Pegasus Gold company, Montana’s largest precious metals mining company with operations scattered across the state, is plummeting dramatically towards bankruptcy. Pegasus stock has lost 95 percent of its value as the company has been forced to write off losses that are larger than its assets. Market analysts do not expect Pegasus to survive as a business.

This catastrophic collapse of one of Montana’s leading mining companies should remind us of the economic downside of mining. We regularly hear the economic upside trumpeted by the mining industry: high-wages, blue-collar jobs, expanded economic base, sizable tax revenues to state and local governments, etc. The riddle that the mining industry has never been able to solve is why, if these economic benefits are real, are there almost no prosperous mining towns? Why, if mining boosts the economic base of an area, is mining associated with regional poverty such as is found in Appalachia or the Ozarks or Minnesota’s iron fields? Why have Butte or Lead, South Dakota, or the Kellogg, Idaho, or the copper towns of Arizona not appeared prosperous for a very long period of time?

The sudden collapse of Pegasus provides an important part of the answer: mineral development is notoriously unstable. When operating, it pays high wages, but no one knows for how long those high wages will continue. As a result, very little investment takes place in mining towns; workers commute in from outside; and very little of the benefit of the mine is captured locally.

This is clear in Pegasus’s case. Less than a year ago Pegasus opened a large gold mine in Australia, promising to produce 260,000 ounces of gold, a hundred million dollars worth, a year. The operation lasted less than a year. It is now shut down permanently with Pegasus writing off $353 million dollars in losses.

This is not unusual. I just returned from northern New Mexico where I was studying various mining operations and proposals. I talked to one worker in the Taos area who had worked for a moly mine for 15 years. He had been laid off 12 times in those 15 years. The day I was talking to him, the mine announced yet another layoff.

One can watch the coming and going of mining operations south of us in the Salmon, Idaho, area or in the Kellog, Idaho, area, or north of us in Lincoln County, Montana, to see the type of economic yo-yo that mining can put a community on.

As Pegasus has discovered and as Phelps Dodge foresaw when it nearly gave away its interest in the Seven-Up Pete mine proposal on the Blackfoot River, metal prices are notoriously unstable. They are determined in international commodity markets based on world economic conditions, world-wide production, and pure speculation. Within a year gold prices can fall from about $400 an ounce to $300 an ounce or copper prices from $1.40 a pound to 80 cents a pound. When that happens, marginal mining operations go belly-up. That is what drove Anaconda Company to extinction in the late 70s.

Mining has two other characteristics that limit the contribution it can provide to communities that embrace it. First, modern mining operations no longer are century long propositions. Instead they are planned to last five to fifteen years. They are a temporary part of the local economy. Second, there is probably no industry in which labor-saving technology makes more consistent and impressive gains than mining. Even as a mine operates at a constant level of output, it is steadily reducing its workforce as labor productivity rises.

This combination of characteristics of mining jobs: unstable, short term, and declining employment explains why community prosperity does not follow mining.

There is one other explanation: There is probably no industry that so radically modifies the landscape and environment in a permanent way than mining. Look at the Berkley Pit in Butte or the toxic Silver Valley in Idaho or the sprawling mess surrounding the Pegasus’ Zortman-Landusky mine in north central Montana. Mining, despite its promises to do a better job next time, mauls the landscape in an irreparable way, generating toxic wastelands in the process. This permanent damage to an area’s liveability undermines the area’s economic future, all in exchange for the unstable, short term, and declining employment opportunities. As Montanan’s again get stuck with the bill for cleaning up Pegasus’ messes around the state, can’t we finally say "enough is enough" and learn to firmly "just say no!" ?