Published Monday,
October 25, 2004 Backing I-147: Canyon Resources seeks to end cyanide
leach mining ban HELENA - Canyon Resources Corp. wants to dig an open pit gold mine as deep as the Seattle Space Needle is tall - roughly 600 feet - about a half mile from the banks of the Blackfoot River. The company has lost money in nine of the past 10 years, including a $12.5 million loss last year alone, records show. Those two things just don't go together, said Gary Buchanan, a Billings businessman, former state Commerce director and one of the principal opponents of Initiative 147, a Canyon-funded effort to repeal the state's 1998 ban on open pit cyanide leach mining. Buchanan, owner of Buchanan Capital, does not own and has not bought or sold any Canyon stock for either himself and his clients. "You can't afford to do mining right when you're financially weak," he said. "Canyon Resources has no business doing business in Montana." Canyon, its finances, environmental record and desire to build a new mine in Montana have become a central part of the campaign around I-147. Opponents like Buchanan, Bruce Farling, executive director of Montana Trout Unlimited, and Jim Jensen, head of the Montana Environmental Information Center, say Canyon's history and weak financial position should give Montanans pause about voting for an initiative that could give the company a green light to develop another, larger mine in the state in an environmentally sensitive area. But Canyon Resources President Dick DeVoto said the company's losses don't mean Canyon is financially fragile, only that it has spent an awful lot of money investing in mines - principally the project slated for Lincoln, the McDonald Gold Project. "You lose money when you're investing in development," he said. "But you get it back - and more - as soon as the mine starts producing gold. That's how the system works." Jim Volberding, project manager for both of Canyon's Montana properties, acknowledged that the company went through a rough patch when the price of gold plummeted a few years ago. And Canyon was hit hard when voters outlawed the kind of mine the company and its partners had spent $75 million developing. But they have never stopped wanting to open the mine near Lincoln and believe they can do it with no impact to the Blackfoot - a river Volberding himself fishes. With the right environmental safeguards, the company's proposed mine could be not only safe but an economic boon for the area, Volberding said, adding that Canyon would likely need the help of a larger mining company to open a mine as large as the McDonald Gold Project. A look at Canyon Volberding describes Canyon as a "mid-sized" mining outfit. Right now, the company operates no active gold mines. It owns the defunct CR Kendall mine near Lewistown, which operated from 1989 to 1997 and is currently in a protracted reclamation process. Canyon also owns the 8-year-old Briggs gold mine in southeastern California, which, according to the company information, is in the waning stages of its life. Active mining at Briggs ended early this year, although tens of thousands of ounces of gold will be recovered from the piles of crushed ore still being processed. That could take up to a year. And it owns the McDonald project, an ambitious would-be open pit cyanide heap leach gold mine near Lincoln. This is the project Canyon had hoped to open when voters banned the technology in 1998. Other than that, Canyon has also done some exploration near the Briggs mine and in the southern isthmus of Mexico. Since 1994, the company has lost close to $70 million, information from the U.S. Securities and Exchange Commission shows. The only year Canyon posted a profit was 1999, when the company earned $203,500. It lost $12 million the year before and $12 million the year after, documents filed with the SEC show. Despite that performance, Canyon sold an extra $7 million in stock in March. Trout Unlimited's Farling, whose organization is a principal donor to the group opposing I-147, questioned just what investors were buying when they spent millions on Canyon stock. Its only product - save for the gold still being processed in California - is I-147 and the promise of the McDonald Gold Project. By that logic, he said, the $7 million stock offering was essentially a fund-raiser for I-147. Canyon has spent more than $2 million on the effort - 98 percent of total funds behind the initiative - even as it posted a $5.7 million loss for the first three months of 2004, state and federal records show. I-147, Farling said, "is about inflating the stock value of Canyon Resources" by buying an election - and a new law - in Montana. Buchanan called the situation "rank speculation on whether they can dupe the Montana public to approve this thing." DeVoto sees it differently. A substantial chunk of the company's assets are wrapped up in the McDonald Gold Project, he said. The company can't develop the mine as long as the 1998 ban stands. So, an investment in I-147 is an investment in Canyon. He said I-147 is about much more than his company. No gold company, large or small, wants to do business in a state that bans open pit cyanide leach mining. DeVoto did not avail himself to questioning about the $7 million stock offering, but Volberding said it only makes sense that Canyon would pony up the greatest support for I-147. "We've got the most to lose," he said. "We have $75 million invested in a gold mine up here. It's really a wonderful deposit, and we think it's worth exploring." DeVoto said the company's losses are right in line with the amount of money it has spent investing in McDonald and other projects. Plus, he said, the Briggs mine, which was designed to turn a profit as long as gold stayed above $400 an ounce, hit a snag when the value dropped to $275. Gold was selling for $424.90 on Friday. The company's stock closed at $2.79 a share Friday, down 16 percent from the day before after heavy trading involving six times as much volume as a typical day, according to Canyon's financial information. In addition, the American Stock Exchange this fall threatened to delist Canyon's stock because the company did not meet financial reporting deadlines. Canyon has until today to file the report. All that should make Montanans skeptical, Buchanan said. No company that has failed to make a penny for its investors in the past 10 years, he said, should be trusted to develop a major mine in this state, especially one so near to a river so beloved. "Why do we keep doing this stuff?" Buchanan said. "Our political leaders need to learn how to read a company's financial papers. We need to do due diligence on the companies we allow into this state." The Kendall mine Buchanan points to Canyon's CR Kendall mine, a relatively small open pit cyanide heap leach gold mine near Lewistown, as an example of what Montanans may expect from Canyon in the future. Buchanan appears in a television ad accusing Canyon of refusing to clean up the shuttered mine and sticking taxpayers with a six-figure bill. Volberding and leaders for I-147 say those charges are false and have urged television stations to pull the ads. So far, none have. Volberding appeared in a full-page ad run in several Montana newspapers this month laying out Canyon's side of the story and asserting the company doesn't owe the state anything. By all accounts, the reclamation history of Canyon's Kendall mine is a lengthy, dizzying tale. After eight years under Canyon's operation, Kendall stopped mining in 1995 and stopped processing ore in 1997, Volberding said. The company started reclaiming the mine after it closed and has spent $8 million cleaning up the site. More than half of the site was reclaimed, said Warren McCullough, chief of the Department of Environmental Quality's Environmental Management Bureau. In the late 1990s, reclamation slowed, then stopped for three years. Volberding said the delay came as Canyon, along with a lot of other smaller and mid-sized mining companies, struggled to deal with a drop in the price of gold. In 2001, concerned that reclamation had ground to a halt at Kendall, the company and state agreed that Canyon would forfeit its $1.9 million reclamation bond to the state. In exchange, Canyon had to come up with a final reclamation plan within a month. The agreement, which John North, the DEQ's chief lawyer said was not particularly unusual, also stipulated that Canyon would not be considered in default on the mine cleanup. Here's where things get tricky: The state did an environmental assessment on the company's cleanup plan and aired its findings at a public meeting in Lewistown. As Volberding describes it, "the state got beat up pretty bad." Regulators ultimately decided that the environmental problems at the mine were so important they needed a more thorough study to determine the best way to clean up the site. That study is still ongoing and out if it, McCullough said, will come the final cleanup plan for Kendall. I t turns out, said Wayne Jepson, a DEQ hydrologist, that Kendall's environmental problems - especially regarding water quality - are worse than both the state and the company anticipated. Most importantly, he said, water washing over the site ends up tainted with thallium, a toxic metal believed to cause cancer. Skin contact with thallium is dangerous, according to information from Los Alamos National Laboratory. The metal has been used to kill ants and rodents and can be used to treat some diseases like ringworm, but application is limited because the line between helpful and toxic is very fine. Canyon has refused to pay for the study. So far, the state has spent $135,000 of tax dollars on the effort, DEQ records show. Opponents of I-147 have run television commercials accusing Canyon of reneging on its obligation to pay for the study. Lawyers for I-147 proponents claim the ads are "patently false." Information from the DEQ suggests both sides may be right. The DEQ has asked Canyon to pay for the study and most companies do pay for the environmental studies needed to figure out the best way to clean up a mine, said Jan Sensibaugh, head of DEQ. But because of the complicated cleanup history at Kendall, Canyon doesn't necessarily have to pay for it right now, North said. Later, when a study is done and a final cleanup plan agreed to, the state can charge Canyon for the cost of the study. Money aside, Volberding said Canyon will ultimately comply with any cleanup plan the state comes up with. He also added that the state has never sent Canyon any bills for the ongoing study. The McDonald Gold Project Like the Kendall mine, the McDonald Gold Project has a lengthy, contested history. The deposit, sitting under "a couple of low hills" near the Blackfoot River, is among the largest untapped gold deposits in the country, Volberding said. Exploration on the site started with the old Anaconda Co. In the mid-1990s, Canyon, along with its partner, Phelps-Dodge, started working in earnest to develop the site into a large open pit cyanide heap leach mine. Phelps-Dodge left the partnership in September 1997, but not before spending many tens of millions of dollars on the project with Canyon. "It's an expensive business," Volberding said. "There's drilling, analytical work, engineering and environmental studies." The companies applied for a mining permit in 1994, Volberding said, and by the early summer of 1998 Canyon was in the middle of a complicated environmental study conducted as part of the permit process. Although the state was running the study, Canyon was paying for it - a common practice, Jepson said. Then, Canyon ran out of money and stopped paying its bill. The state called off the study after a few months, McCullough said. By September, the state agency that manages mineral leases had alerted Canyon it had only 17 months to get the mine open or its leases would expire. But Canyon couldn't work toward the permit until it could pay the state for the environmental study, Volberding said. Then, on Nov. 2, 1998, voters banned the technology on which the mine depended. Canyon eventually paid the state for the study, North said, and its many volumes are still in DEQ records. But Canyon could no longer work toward opening a mine and without that, its mineral leases were doomed to expire. They did in February 2000. "That placed us in a huge catch-22," Volberding said. "We were in a situation where we couldn't permit something that was illegal." And without a permit, a company can't keep a mineral lease in Montana. Since then, Canyon has redesigned the project, Volberding said. The current plan calls for a pit 600 feet deep and about 1,200 feet across. (For perspective, the smokestack on the old Anaconda copper smelter is 585 feet high.) The gold deposit is situated in rock that won't produce the most difficult aspect of open pit mines: acid rock drainage, Volberding said. Acid rock drainage is the process where certain rocks produce sulfuric acid when exposed to water and oxygen. In addition to the other problems associated with acid, the mixture leaches other metals out of the rock to create even more problems. Acid rock drainage is the process currently at work in the water filling the Berkeley Pit in Butte and is one reason the pit water is problematic. The redesigned mine also calls for no open ponds of mine-affected water, among other things Volberding said would make the mine safer and more visually appealing from the highway. "From day one, the bottom line for the design team was 'Thou shalt not touch the Blackfoot River,' " Volberding said. The Blackfoot is the river deified by "A River Runs Through It," a book by Montana author Norman Maclean in which he describes the beloved river in near-mystical terms. The book was adapted into a movie in 1992. Buchanan said he isn't convinced Canyon can do right by the Blackfoot. Supporters of mining always say there are good companies and bad companies. Canyon is one of the bad ones and Montana shouldn't let it operate here, Buchanan said. The company loses money for its shareholders and has already shown what it'll do when the company hits hard times: stop cleaning up its mine. Montana Trout Unlimited has spent tens of millions of dollars cleaning up the Blackfoot River, Farling said. It doesn't want that investment dashed by a company that "gives mining a black eye." Tammy Johnson, spokeswoman for Miners, Merchants and Montanans for Jobs and Economic Opportunity - the group pushing for I-147 - said she can't speak for the kind of company Canyon Resources is, but said there's nothing in I-147 that guarantees any company will get a permit to open a mine. I-147 would repeal the ban on open pit cyanide leach mining and restore Canyon's mineral leases, but it isn't a free pass for the McDonald Gold Project.
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