The State Of The Nevada Mining Industry: An Executive Interview

Includes: LODE, PGLC
by: Troy Bayer

I had the pleasure of interviewing this week Mr. Steve Alfers, current CEO of Pershing Gold (PGLC). Alfers has contributed a lifetime of work to the mining industry in Nevada and elsewhere. His work in Nevada makes him very familiar with current events in the state. After graduating from the University of Virginia School of Law, Alfers gained over 20 years of experience in Nevada mining, mining law, and corporate leadership, serving as an executive in several companies including his own, NewWest Gold Corporation. From 2007 to 2011, Alfers served as Chief of U.S. Operations for Franco-Nevada (NYSE:FNV) while market capitalization increased to nearly $7 billion. By 2012, Alfers had left to take on a smaller project centered on Pershing County, Nevada and its Relief Canyon mine. He joined me for a frank interview to discuss the state of affairs in Nevada's natural resource industry.

I interviewed Steve Alfers for this article.

Troy Bayer: Thanks for speaking with me, Mr. Alfers. Now before we get into your background, I want to jump right in and ask you the top thing that every investor needs to know about Nevada mining right now. Let's jump right to the chase. In case someone doesn't stay with us through the whole interview, what is the most important thing that an investor needs to know right now if they are going to put their money to work in Nevada?

Steve Alfers: Nevada remains one of the best places to look for gold. New discoveries continue to be made - both as expansions of existing mines, redevelopment of old mines, and even brand new, frontier discoveries like Long Canyon, a new Carlin-style deposit, which is about 90 mines east of the Carlin district. Investors thus have a broad array of choices of where to invest in Nevada as well as in what kind of company in which to invest - a well established major mining company or an up and coming junior. The bottom line is that if investors want exposure to U.S. gold projects, then Nevada is the best place to be.

Troy Bayer: OK great, I appreciate your sportsmanship there hitting the ground running. So, ok, let's back up a bit and get a little background about you. You have been in Nevada for quite some time now, isn't that right? 20 years?

Steve Alfers: Well now I'm really showing my age. I started working in Nevada in the early 1980s - so it's more like 30 years.

Troy Bayer: OK. I also know that you have experience in the exploration and development side. I saw that you worked at Long Canyon, Sandman, and Northumberland mines. I'm sure there are others where you've worked. OK, so you built NewWest Gold and sold it for over $186 million Canadian dollars to Fronteer Gold (FRG) in 2007. Following that transition, you joined Franco-Nevada Corporation to help form that company and acquire Franco's original asset package from Newmont (NYSE:NEM). You were a senior executive at Franco-Nevada until this year.

What are the major public mining companies operating in Nevada? Can you just quickly list the top five?

Steve Alfers: Well, the mining industry is well represented in Nevada. Operators include Newmont, Barrick (NYSE:ABX), Coeur d'Alene Mines (NYSE:CDE), Goldcorp (NYSE:GG), Queenstake, Allied Nevada (NYSEMKT:ANV), and Kinross (NYSE:KGC). The two major gold focused royalty companies, Franco-Nevada and Royal Gold, are also heavily invested there. Some emerging producers, like Atna Resources, Midway Gold (NYSEMKT:MDW), Comstock Mining (NYSEMKT:LODE) and my new company, Pershing Gold (NASDAQ:PGLC), are there, as are a great many junior exploration and development companies.

Troy Bayer: Now what makes Nevada such a hot spot for mining companies? When I think of Nevada, I wonder where there could be gold left after so many years of mining. Do you think there are still a lot of undiscovered resources in the state?

Steve Alfers: Well as the old saying goes, when you are looking for elephants, you need to go to Elephant Country. Nevada is definitely Elephant Country, with a tremendous amount of discovery potential to expand existing mining operations to find new mineralization at closed mines that can be redeveloped and reopened, and the occasional new discovery like Long Canyon in a frontier area.

I am particularly enthusiastic about the redevelopment potential at closed mines. The tremendous success that Allied Nevada Gold has had in the last few years reopening and expanding the Hycroft Mine is emblematic of the opportunities that exist at previously operated mines throughout Nevada.

Of course, that is exactly the path Pershing Gold is on at Relief Canyon. We are planning to redevelop and reopen this mine. We have taken the unprecedented step of consolidating the land surrounding the mine, and we are actively exploring these lands. Pershing Gold is in an optimal position because we already have a fully permitted and constructed heap leach processing facility. So we are ideally situated to put Relief Canyon back into production with limited additional capital investment - just like Allied Nevada was able to do back in 2008 when they reactivated the mine and heap leaching facilities at Hycroft.

Troy Bayer: I read that mining operations at a 150-year-old Comstock mine are going to re-start. Are there a lot of old mines in Nevada that find new life because of modern technology?

Steve Alfers: Yes. The news about Comstock Mining's activities to resume mining on the Comstock Lode is very exciting and speaks to the opportunities associated with using modern exploration and mineral processing technologies at historic mining districts. Not only do we have better technologies today for extracting gold, we also have advanced exploration techniques including geophysics and remote sensing - that enhance the industry's abilities to take a fresh look at old districts. Companies are doing just that throughout Nevada. Pershing Gold at Relief Canyon, Premier Gold Mines at the Cove Project, Allied Nevada at Hasbrouck, Renaissance Gold and Liberty Silver at Trinity, and Nevada Copper at Yerington are just a few examples.

Troy Bayer: In that same vein, as far as technology, I'd like to touch on safety. I read that there was one casualty last year at a Newmont mine: a 21-year-old man who died from inhaling fumes. How is safety in the Nevada mining industry from your perspective?

Steve Alfers: Nevada's mining companies put a premium on operating safely. People who work at Nevada mining operations receive a great deal of safety training. In many cases, their bonuses depend on having an unblemished safety record. If you visit a Nevada gold mine, you will see billboards and signs everywhere with safety messages. Also, as a visitor, you will receive safety training and will be given safety equipment to wear before you can tour the site.

Troy Bayer: Let's talk big picture and current events. Fill me in on the current state of the Nevada mining industry in general. What is the state of the industry? What's going on there now?

Steve Alfers: I'm quite bullish on the resource side of the equation, and I think there is much upside potential to discover new gold deposits and expand existing ones. There are, however, market-driven challenges for junior companies when it comes to raising money to fund their exploration activities. Some companies - particularly those that don't have an especially promising portfolio of projects - may not survive in this investment climate. But I'm confident that companies with good projects will continue to attract investors and will be able to use venture capital dollars to explore and advance their projects.

The industry does face some policy challenges. There is an ongoing debate in the Nevada State Legislature over the Net Proceeds of Mines Tax - whether this tax should be taken out of the State's Constitution so that State Legislators will have more leeway in the future to change the tax structure or rate. The uncertainty that this creates is not good for the industry. Nevada over its history has been friendly to business, including mining and ranching. Ultimately, I hope State policymakers will follow that tradition and recognize that the best way to increase tax revenue from mining is not to raise taxes but to enact policies that increase the tax base by encouraging mineral exploration and development that will lead to more production.

On the federal side, BLM's current proposal to develop more stringent sage-grouse conservation measures and even restrict development of lands with priority sage-grouse habitat could be problematic to all users of Nevada's public lands - not just mining - especially in northeastern Nevada. The industry has been working closely with Governor Sandoval's Sage-Grouse Advisory Committee to develop sage-grouse conservation measures that protect and restore sage-grouse habitat while at the same time encourage responsible economic development and stewardship of Nevada's public lands. I am hopeful that the Governor's Committee will carry the day in forging solutions fair to all the stakeholders.

Troy Bayer: Tell me a little about women in Nevada mining. I think this is an important point. I checked the statistics, and females now comprise a quarter of the mining workforce in Nevada. In the 1970s, that figure was only 5 percent. What are your thoughts there?

Steve Alfers: Nevada mines employ women in a wide array of important jobs as engineers, metallurgists, geologists, equipment operators, attorneys, accountants, and permitting experts. I'm told that women make the best haul truck drivers because they take better care of the equipment than the men.

Women working in mining and exploration in Nevada have also had a substantial influence on mining policy in the last 20 years. In 1993, three women geologists started the Women's Mining Coalition, one of the industry's most effective and successful mining advocacy groups.

Troy Bayer: I read that Nevada state governor Brian Sandoval has called on state businesses to help create 50,000 jobs over the next three years. Now, the Nevada Mining Association recently estimated that mining will add about 1,200 jobs this year, which doesn't seem like it will make a huge dent in the 50,000 number, but it is, nonetheless, higher than last year's 500. Do you think the mining industry will be able to step up to the governor's challenge of contributing to 50,000 jobs over the next three years?

Steve Alfers: In Nevada - the state with the Nation's highest unemployment rate (12%) - every job counts. And mining jobs count a lot, because mining salaries are essentially double what other Nevada workers earn. According to the NV Mining Association, in 2010 the average salary at a Nevada metals mine was $85,907 compared to the average earnings for all industries in Nevada of $42,536.

Nevada mines could add many more jobs sooner rather than later to benefit the state if the federal permitting process could be improved. This is so because the most dramatic job creation in mining comes at the stages of development and mine construction. The three to five year period it takes to get a permit to build and operate a mine on federal land is a substantial hurdle to job creation in Nevada. Permitting delays have an unfortunate ripple effect on Nevada's economy - whether you are talking about mining or other development activities on Nevada's public lands. So the industry needs to redouble its efforts to move federal and state regulators to streamline permitting, and that will stimulate mining job creation.

Troy Bayer: Tell me a little about what you are up to these days.

Steve Alfers: I've always been fascinated with the exploration and development end of the mining industry. So when I got another chance to lead a mineral exploration and development company - Pershing Gold - I leapt at the opportunity. I was especially attracted to Pershing Gold for two reasons. First, the Relief Canyon Project is unique because it already has a state-of-the-art heap leach processing facility that can be restarted in the near future.

Second, I believe that Pershing County is home to one of the most promising, underexplored and undervalued gold trends in Nevada. The mines in this area have been steadily producing gold and silver for the last three decades, with Coeur's Rochester Mine as the flagship producer in the district with over 100 million ounces of silver production. Florida Canyon has produced over 2 million ounces of gold over the years. Barrick Gold is advancing its Spring Valley project that lies just north of Coeur's Rochester Mine.

As Pershing Gold's Chairman and CEO, I've surrounded myself with a team of experts: geologists, engineers, and permitting specialists who will help put the Relief Canyon Mine back into production. This team is also aggressively exploring Pershing Gold's 24,000-acre landholdings in and around the Relief Canyon Mine. We are very excited about the discovery potential on these under explored lands.

Troy Bayer: Is there anything else you would like to express in regards to where the Nevada mining industry is going and what you see in its future?

Steve Alfers: I hope the industry will become more diversified in the future in terms of the range of size of producers - like it used to be in the '80s and 90s when the industry was comprised of a number of small and medium-sized producers and several larger producers. I think there is an important niche to be filled in increasing the number of small and medium-sized producers in Nevada. Look, for example, at the tremendous impact in terms of creating shareholder value, high-paying jobs, and benefits to the State and local economies that Allied Nevada has made by re-developing the Hycroft Mine. Projects like Hycroft, which do not interest the majors, represent an enormous opportunity for small- and mid-tier companies, for investors, and for the State of Nevada as well.

Troy Bayer: Thank you for your time, Mr. Alfers.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Disclaimer: The writer is not a licensed broker or investment adviser and therefore cannot recommend that you buy, sell, or hold any security.