Yuba Goldfields Is Now a Burial Ground for Dreams : Silberman Money-Laundering Arrest Only Complicated Matters at Already-Troubled Mining Joint Venture
In 1983, the year that Richard Silberman and several partners, including J. David Dominelli, paid $6 million to gain control of Yuba Natural Resources, Silberman described the company’s 9,900-acre Yuba Goldfields as a “natural resource bank” from which the company hoped to draw big profits in gold, silica and aggregate.
Silberman was writing to shareholders at a time when the United States was emerging from a recession marked by double-digit inflation and skyrocketing precious-metal prices. He concluded by saying that Yuba would benefit from high world debt and a “generally weak world economy.”
Silberman laid out an ambitious strategy for Yuba based on gold prices stabilizing “in the $500 to $600 (per ounce) range.” Moreover, the company would build a silica plant, making it the only “reliable producer of silica flour . . . in California.” In addition, Yuba would exploit the field’s 1.5 billion tons of high-quality aggregate, the rocks used in concrete and gravel.
Death of Grandiose Dreams
Six years and $6 million in losses later, the Yuba gold field, 10 miles east of here, could more aptly be described as a burial ground for the grandiose dreams of Silberman and other Yuba investors. Silberman’s arrest April 7 for allegedly attempting to launder money he thought came from Colombian cocaine traffickers only compounded the uncertainty surrounding Yuba.
Silberman’s arrest came at a time when Yuba faces formidable legal and tax problems as well as creditors baying at its doors. Among them is the U. S. Bureau of Land Management, which alleged last week that Yuba “welshed” on a $130,000 payment due April 1 on Yuba’s 1988 settlement of mineral trespass charges.
The company was so low on cash earlier this month that major shareholder M. Larry Lawrence, owner of the Hotel del Coronado, had to make it a loan so it could pay its bills, the company acknowledged Monday.
Gold Prices a Problem
The roots of Yuba’s problems are several, among them the fact that gold prices have stubbornly hovered at about $400 an ounce in recent years. That price makes Yuba’s mining joint venture with Bond International Gold of Denver only minimally profitable. Bond describes Yuba, one of only two dredge gold-mining operations in North America, as the least profitable of its four North American gold mines.
“Dredge mining . . . tends to be unprofitable unless you have unreasonably high gold prices,” Bond spokesman George Young said last week, adding that the joint venture extracts about 0.006 ounces of gold for each cubic yard of ore processed by the dredge. Two-thirds of the joint venture is owned by Bond, one-third by Yuba.
At 24,500 ounces of gold a year, the Yuba dredging operation produces just a fraction of the 220,000 ounces Bond expects to net per year, for example, at its new mine in Bullfrog, Nev., Young said.
The ore, first mined at the site in 1905, is scooped up by a huge dredge at depths of up to 140 feet below the surface of the Yuba River. Gold is sifted, then refined with a mercury amalgamation process, all on board the dredge. With its 200-foot-high piles of tailings, the gold field resembles a lunar landscape.
Yuba’s dream of becoming a major producer of silica, a mineral used in glass and fiberglass production, is also in eclipse. Because of inadequate capacity, Yuba’s silica processing plant is unable to generate more than marginal profits. The company acknowledged in public filings last year that it lacks the necessary capital for expansion. As a result, Yuba’s auditors say it may have to write off the plant’s $10.5-million carrying value.
The auditors also say Yuba may soon have to write off or classify as an expense a $3-million deposit it gave to Bond when it made an abortive effort to buy Bond out of the gold-mining joint venture two years ago. Such an action would have a negative impact on Yuba’s earnings.
In 1987, cash-poor Yuba signed away mineral rights to the property’s aggregate production for 99 years to Centex Corp. of Dallas for $5 million, a non-cash payment that resulted from Centex assigning to Yuba a 100% interest in the silica plant. Yuba booked the transaction as revenue, enabling it in 1988 to show the only annual profit since Silberman took over.
In exchange, Yuba will receive a royalty from Centex on all the aggregate it mines. But, until Centex succeeds in building a 4-mile rail spur to the property--a long shot since it requires Department of Defense approval for building through adjacent Beale Air Force Base--the royalty will not amount to much. Yuba gets less than $500,000 a year in royalties from Centex, President Larry Hirsch said last week.
“The rail link is needed to extend the market for the aggregate into the San Francisco Bay Area,” Hirsch said. “It’s a long-term project for a company like Yuba that has capital problems.”
To sell the rights to Centex, Yuba had to first buy out William Harvey, a suburban Sacramento sand producer with whom Yuba had set up a joint venture in 1985. But, according to records on file at the Yuba County recorder’s office, Yuba in November defaulted on a $104,000 promissory note taken back by Harvey to finance the buyout. Harvey has since initiated foreclosure proceedings.
Since February, Yuba has also been in default on a $94,889 promissory note owed to Western United Life Assurance of Spokane, Wash. As has been its practice ever since Silberman’s arrest, Yuba declined to comment on its financial problems Monday.
In addition, Yuba has had several liens placed on its property by the Yuba County tax collector over the past two months for nonpayment of property taxes.
Yuba’s liquidity problems were evident from its financial statements for the quarter ended Dec. 31, which show the company with only $424,827 in current assets to match $10.7 million in current liabilities or obligations. The company declined to comment Monday on the status of a $5-million loan that was due and payable to Bank of America on April 3.
The company seems to have been ill-starred from the outset, ever since Silberman financed the takeover of Yuba from Marvin Kratter of Las Vegas, partly with dollars from convicted swindler and Ponzi schemer J. David Dominelli. Dominelli owned 20% of Yuba stock before his investment company was thrown into involuntary bankruptcy proceedings in 1984.
J. David & Co. investors ended up doing better on their Yuba stock than with many other J. David schemes, trustee Allen Frostrom said last week. The trustee sold the Yuba stock to Larry Lawrence, recovering about 40% of the money invested, he said.
After replacing Silberman as chairman and chief executive last week, Yuba set up a committee to investigate Yuba’s finances and what role, if any, the company played in Silberman’s alleged money-laundering activities.
“It will all be uncovered, and we are working day and night with our attorneys to uncover it,” said Alan Aiello, a Yuba director who is also chief executive of MLL Investment Co., a Lawrence company involved in natural resources.