Hoping this new gold rush pans out

There's still gold in them thar hills.

A microscopic fleck of it glitters in white rock visible to explorers 600 feet beneath the grassy hummocks of Sutter Creek, a tiny mining town that was once a hub in California's gold rush.

"You see it? Right there," says geologist Scott Briscoe, wading across a subterranean puddle and pointing to a yellow chip no bigger than the dot of an "i" just visible in the white light of his headlamp. "If you can see it, it's pretty rich."

Briscoe is gathering samples for Sutter Gold Mining Inc., a Canadian firm that wants to reopen this mine in an area that has drawn fortune hunters for more than a century. Company tests suggest there could be hundreds of thousands of ounces of gold in this mineral-rich chunk of land, worth hundreds of millions of dollars if the metal stays near its current price of about $953 per ounce. That's made Sutter Gold determined to revive California's gold mining heritage.

If the company succeeds, the Lincoln project, as the mine is called, would be one of the few operational underground gold mines in California. It would be the only working mine in that district of the Mother Lode, the rich veins of gold-bearing ore that snake under California Highway 49 from Nevada City to Mariposa.

Locals say the mine would provide a boost to Amador County, a pokey rural outpost in the northeastern part of the state that's dependent mainly on tourism and casinos.

"It's hard times around here," said Pam Starkey, a bartender at the Fargo Club, a bar in nearby Jackson that, like Sutter Creek, relies primarily on visitors.

The big challenge, Sutter Gold officials said, is complying with California's tough environmental regulations while finding enough investors willing to gamble that the price of gold will stay high enough to make all the effort pay off. The company so far has secured 34 permits from 16 agencies, requires about a dozen more and is still more than a year away from a potential launch, according to its president, Clayr Alexander. It's already spent about $30 million to refurbish the mine's underground infrastructure and assess the amount of gold in the ground, among other tasks.

"Investors say 'Oh, you're in California,' and it scares them," Alexander said. "But we're going to prove them wrong."

The push to reopen the mine picked up momentum last year came when RMB, a unit of South Africa's Rand Merchant Bank, bought 49.9% of the common shares of Sutter Gold from U.S. Energy. RMB recently devoted $4 million more for testing and engineering work.

The price of gold has risen steadily since 2000 and has more than doubled since 2004. That's because gold does well when the global economy is shaky, according to Jeffrey Nichols, managing director of American Precious Metals Advisors, a New York consulting firm. Investors have also taken a shine to gold exchange-traded funds, increasing demand, he said.

Asia's growing prosperity is likewise fueling desire for gold jewelry, a traditional store of wealth in India and other developing nations, said Luke Popovich, a spokesman for the National Mining Assn.

Output in some mines in South Africa and the United States, both major gold producers, is beginning to dwindle. That's prompting mining companies to reexamine areas in Latin America and parts of the U.S. such as Nevada and Alaska, where gold has been found before.

In California, the high price of gold has also attracted individual prospectors who pan in rivers and dig in abandoned mines on their own. But few companies have pursued the costly process of reopening the underground mines that once produced millions of ounces of the metal.

Mining in Sutter Creek began a few years after James W. Marshall discovered gold in 1848, setting off a rush in U.S. territory that soon became the state of California. Miners initially clustered around John Sutter's sawmill near Coloma, panning in rivers or using sluice boxes to sort through rocks to find gold.

But once gold was discovered in the quartz near Sutter Creek, entrepreneurs opened hard-rock mines there, digging beneath the ground. Between 1852 and 1952, about 2.3 million ounces of gold were extracted from land there that Sutter Gold now controls.

Many of California's mines closed in 1942 after an order from the War Production Board determined that extracting gold was not contributing to the war effort. Reopening them proved costly because many of them had become filled with water. The industry that made California the Golden State employs only a few hundred workers today.

Some of those old mines, including one known as the Sutter Gold Mine, whose entrance is between Sutter Creek and Amador City about 45 miles east of Sacramento, are used primarily for tours recounting the long history of gold mining in the state.

Just a few hundred feet from where Briscoe searches for gold, a handful of tourists sit in a small underground antechamber listening to a tour guide with an unkempt gray beard and rusty miner's hat. He points to a fake canary in a cage and tells the tourists, all wearing red hard hats, how miners used the birds to gauge the air quality in the mine (a fainting canary signaled unsafe working conditions).

Many of the guides are locals whose grandparents and great-grandparents worked in the original mines. They're eager to do more than entertain tourists.

"Some people think it's a pipe dream and that it will never happen, but our dream is to reopen the gold mine," said Holly Boitano, a fifth-generation miner and former tour guide who is now Sutter Gold's health, safety and environmental protection coordinator. "It's why we're here. It's why our grandparents came here."

But times have changed since the '49ers ran roughshod through California's gold country, leaving a toxic mix of mercury, arsenic and asbestos that pollutes the Sierra Nevada to this day.

In addition to extensive permitting, mining companies are required to backfill in California, putting most of the rock they remove from the ground back in again. That rule and others have made both investors and miners wonder if gold mining makes economic sense in California.

Companies that have persevered have not gotten a warm reception.

In the late 1990s, environmentalists helped derail a proposed gold-mining project in the Imperial Valley, according to Laura Skaer, executive director of the Northwest Mining Assn., a trade group that works with mining companies.

A bid by Canadian company Emgold to open the Idaho-Maryland Mine within the city limits of nearby Grass Valley was opposed by residents worried about pollution and traffic as well as chemicals in the groundwater. The city is still studying the mine's environmental impact.

"We want to make sure that if there's going to be an operation, that the environmental impacts can be dealt with in a responsible way," said Mike Thornton, mining project organizer for the Sierra Fund, which had concerns about the Grass Valley project and is trying to educate people about the toxic legacy of some of the abandoned mines.

Mining companies have gotten the message.

"The perception out there is that California is not mining-friendly, invest your money somewhere else," Skaer said.

But in sleepy Sutter Creek, where mining's legacy can be seen everywhere -- from antique shops such as the Clothes Mine to an apparel store called Romancing the Range -- residents seem eager for the mine to reopen, if only to have something more exciting to talk about than gourd crafts (there's a gourd group that meets in town twice a month).

"Mining's what brought this town about. Mining provides jobs, so dig up!" said Kevin Zorrozua, a 45-year-old resident sitting on a bench across from the clubhouse of the Native Sons of the Golden West, watching cars drive past the ice cream parlors and antique shops of Main Street.

Residents say they could use the jobs mining might provide. Tourism has declined during the recession, and a bypass road finished in 2007 allows motorists to avoid the immaculately preserved mining towns entirely when traveling in the region.

"In terms of the economy, we're like everyone else -- the jobs would be very welcome," said Rob Duke, the city's police chief, city manager and head of the regional wastewater authority.

Sutter Creek's July unemployment rate of 14.5% was the area's highest, and Amador County's rate jumped from 7.8% in July 2008 to 12.1% this year.

A large car dealership in the county went out of business in December, and independent retailers have been closing, cutting into sales tax revenue, said Michael Daly, city manager of neighboring Jackson.

At the Fargo Club early one Wednesday evening, Wesley Burns, an unemployed former trucker, said that there are hardly any help-wanted ads in the paper anymore and that he hasn't worked for months.

Reopening the Sutter Gold Mine would bring back some of the locals who left to work in such mining-friendly states as Nevada and Idaho, said Stacy Rhoades, 37, the fourth generation of a mining family who is now the mine's manager. He had left California to work in a uranium mine in Wyoming.

It might also send a sign to other companies that gold mining in California isn't just for the history books.

When he was in high school, Rhoades had an assignment to develop a business plan for a company of his choosing in Sutter Creek. He proposed reviving the mining operation. The teacher gave him a D-minus, saying it was an impossible task.

"We would like to be able to prove that it can be done in California," said Alexander, Sutter Gold's president. "People will see the benefit that we can bring to the community with the jobs, and that it's a very compatible industry for that region of California."

But even those hungry for the stimulus a mine might bring aren't getting their hopes up. Since the 1980s, residents have watched the mine's ownership change several times. Hopefuls drilled and sampled, but they always abandoned the project when the price of gold fell.

"They've been talking about reopening it for years," said David Way, son of the owner of the Sutter Creek Inn, which bills itself as the first bed and breakfast west of the Rockies. "Some say they'll never open it."



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