Chilean Gold Prospectors Struggle to Survive as Prices Tumble
By Heather Walsh
Andacollo, Chile Dec. 6 (Bloomberg) -- Juan Yanez lights a stick of dynamite and scrambles out of a mine shaft before an explosion rips through the tunnel below.
That dangerous race, and working in near darkness 45 meters (148 feet) underground, is all in a day's work for the 43-year-old Chilean gold prospector. So is low pay. Yanez makes about 60,000 pesos ($104) a month as low gold prices chip into his salary.
``You practically can't survive,'' said Hector Pizarro, as he wound up the rusty metal barrel that Yanez fills with ore. ``We have enough to eat, that's all.''
The miners' plight is emblematic of how a drop in gold prices to $270 per ounce from more than $400 in 1996 has choked the livelihoods of prospectors in Chile and forced money-losing gold mines to shut down or slash costs.
Prospectors are tightening their belts to squeeze more out of their supplies, including sticks of explosives, mercury used to separate gold from rock, and fuel for the metal lanterns that hang from their necks.
``Pretty soon we'll have to switch to candles because we can't afford anything else,'' jokes Yanez, 43, after clambering up a wood ladder for a lunch break.
Weak demand for the metal has made even the biggest companies wary of developing mines. Placer Dome Inc. has delayed developing its $1.3 billion Cerro Casale gold and copper mine in northern Chile until prices rise.
Such delays may eat into growth in output in Chile, Latin America's No. 3 gold producer after Brazil and Peru. That's a change from much of the last decade, when half-a-dozen new gold mines increased output 44 percent to 48.1 tons, according to research firm Gold Fields Mineral Services Ltd.
Handouts for Poor
Low prices have brought hard times to Andacollo, an isolated town in the Andes mountains 425 kilometers (264 miles) north of the capital of Santiago. Each morning, the poor queue on the town's main street for handouts of food and clothing. Nearby, farm workers pile into buses to be taken to tend grapes and papaya in the valleys below.
Dayton Mining Corp. is shutting its mine on the edge of town, after firing 250 workers in September. Those cuts may add to an exodus from Andacollo, where the population has shrunk by a sixth to about 10,000 from more than 12,000 in 1992, the municipality said.
``People have left and the drinkers don't have money to drink,'' said Juvenal Pizarro, who runs a small liquor store. His son was fired by Dayton. Pizarro isn't related to Hector Pizarro, the prospector. ``Sales are 10 percent of what they were.''
In the early 1990s, when gold averaged about $100 more per ounce, Andacollo buzzed with hundreds of prospectors looking to make their fortune.
``You made money -- you had something in your pocket,'' said Hector Pizarro, 67, who with his brother, hauls up more than a ton of ore a day.
Ore Crushing
On a dusty downtown street alongside a row of cages holding exotic birds, a yard once filled by miners crushing ore is almost empty. Two men walk in circles pushing a log attached to a hefty cylindrical rock that pulverizes a mixture of rock and mercury -- the same system used 200 years ago to start the process of separating gold from other elements.
While miners once stood in line to work the machines, most are now unused. In better times, almost 1,000 miners worked in Andacollo, said the town's mining association. That number has dwindled to 150. Countrywide, 1,330 men work as prospectors or in small mining outfits, according to the National Geology and Mining Service.
Small companies that hire 40 or less people accounted for about 9 percent of Chilean output in 1999, down by more than half from 1998. The figure doesn't include production by many individual or small groups of prospectors.
Big Mines Hammered
Big mines have also been hammered, helping to reduce Chile's gold exports to $248 million in 1999 from $423 million in 1996.
Canada's Dayton Mining stopped digging for ore at its Andacollo mine to curb losses after a sliding quality of ore pushed costs to above $300 an ounce, or more than $30 above its market price, said mine manager Fred Earnst.
El Refugio, a $270 million mine owned by Bema Gold Corp. and Kinross Gold Corp, has also partially shut down. It's costs were $325 per ounce.
``You're losing money for each ounce that you sell,'' said Gaston Araya, general manager of El Refugio. ``These prices will mean the death of a lot of operations.''
Costs at El Refugio are set to be cut to $200 per ounce this month as the company suspends digging and crushing ore, which saves them energy and other costs. Instead, it will process stockpiled ore.
Other mines, like Agua de la Falda, owned by Homestake Mining Corp. and Chilean partner state-run Codelco, are suffering losses.
Some Moneymakers
To be sure, not every mine is losing money.
Chile's three-biggest gold mines -- Meridian Gold Inc.'s El Penon, Placer Dome and TVX Gold Inc.'s La Coipa and Barrick Gold Corp.'s El Indio - said they all make money. Barrick also plans to begin work on its $950 million Pascua-Lama gold mine on the Chile- Argentine border as soon as next year, said mine executive vice president Raymond Threlkeld.
Gold prices have failed to respond to worldwide production cutbacks, in part because of sales of gold reserves by central banks. Still, prices won't stay at current levels forever, analysts said.
``I think there will be a time when the gold price will rise to be significantly higher,'' said John Bridges, an analyst at Robert Fleming Securities in New York. ``I just don't know when.''
A rally may come too late for Andacollo.
Board members of the town's mining association, many of whom have spent their lives prospecting, aren't sure whether to advise colleagues to turn to other ways to make living, such as growing olives or raising donkeys.
Many, like Hector Pizarro, are reluctant to abandon the hills that are said to have supplied part of the roomful of gold demanded by Spanish conquistador Francisco Pizarro as ransom for Inca ruler Atahualpa.
Others are giving up. After almost three decades hunting for gold in the hills of northern Chile, Humberto Lopez, gave away the hardhat and metal lantern that are the hallmarks of his profession.
``I was making almost nothing,'' said Lopez, a tanned-faced miner with an easy smile. ``A gram of gold doesn't go far.''
Not for the time being at least.
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