It was a lousy few months at the Marigold Mine 35 miles southeast of Winnemucca.
Diesel fuel prices went up, taking a big bite out of the profitability of the mine that's twothirds owned by Reno's Glamis Gold.
Worse yet, fuel prices rose at a time that the mining operation was moving into ores that need to be trucked a fair distance to the processing facilities, further boosting costs.
And then Glamis, the operator of the mine, discovered in recent weeks that the property may contain less gold like maybe 60,000 ounces less gold than the company projected.At current prices, that's nearly a $28 million swing in the value of the Marigold Mine.
Diesel fuel is a big component of the cost structure of the mine,which is one-third owned by Barrick Gold.
Kevin McArthur, the president and chief executive officer of Glamis, told investors last week that the mine consumes about 20 gallons of diesel fuel to produce an ounce of gold.
Marigold produced abut 37,000 ounces in the third quarter.
As a rule of thumb,McArthur said, a $10 increase in the price of a barrel of oil adds $3 to the cost to produce an ounce of gold.
The cash cost of production at Marigold ran $276 an ounce during the third quarter, up sharply from $198 a year earlier.
Then, too, there may be less gold to mine at any cost than Glamis and Barrick believed.
As drill rigs poked holes to find the direction that mining operations should move to follow ore deposits,McArthur said the expected gold deposits simply weren't there.
In fact, Glamis said production at the mine next year may be reduced by 10 to 20 percent from this year's figures, and the company believes is likely to produce about 200,000 ounces of gold annually for the next few years.
That's a dramatic turnaround.
Six months ago, Glamis executives said they expected to invest heavily in the Marigold Mine and projected steady increases in gold production for the next decade.
McArthur said the company now is looking at reducing its reliance on high-cost mines such as Marigold and instead wants to produce production from low-cost operations in Central America.
Its El Sauzal mine in Mexico, for instance, produced 42,185 ounces of gold in the third quarter at a cost of $168 an ounce.
Company officials believe their Marlin Mine in Guatemala also will be a low-cost producer.
The mine, which just began operation, is projected to produce 250,000 ounces of gold next year.
And McArthur said the company is scouting acquisition possibilities.
"We're looking at all the usual suspects," he said."We're looking for tip-of-the-iceberg stories."
For the third quarter, Glamis reported earnings of $1.6 million on revenue of $41.1 million.
A year earlier, the company earned $2.8 million on revenues of $21 million.
Along with higher fuel prices, the company's bottom line was hit by a $2.9 million increase in exploration costs as well as a noncash charge of $1.8 million related to stockbased compensation.
