Mine Games

Five years ago, Steve Goss washed out of the mining industry like a piece of iron pyrite falling from a prospector’s pan.

His firm, a penny mining stock, failed for lack of financing. Speculative investors – the traditional funding source for high-risk mining ventures – had abandoned the industry to chase after dot-coms.

In January, amid rising metals prices, Goss jumped back into the game.

By day, the 53-year-old Spokane resident works as a real estate appraiser for the Washington state Department of Transportation. Nights and weekends, he’s president of Timberline Resources, a small company raising money to explore mineral claims in Idaho, Montana and Nevada.

Goss’ dream is shared by every prospector.

“You’re trying to find the big deposit,” he said. “It’s like a treasure hunt every day.”

Rising prices for gold, silver, copper, lead and zinc are reviving the junior mining sector. Plentiful in the Inland Northwest, these tiny public companies are the exploration arm of the mining industry. Most have no operating mines. Their geologists scour remote regions for new deposits. They spend thousands of dollars on diamond drilling. Each new rock sample kindles hopes of hitting the mother lode.

About half of the world’s major mineral deposits are discovered by junior mining companies, according to industry estimates.

With high risk, and potentially high reward, “the juniors” attract a distinct investor.

“They’re sophisticated investors who can afford to lose,” Goss said. “They understand metals and the market.”

Timberline Resources raised $200,000 this year through a private placement. The money came from accredited investors, individuals worth $1 million or more. That kind of money wasn’t available five years ago, Goss said.

Metal prices were low, and the 1997 Bre-X Minerals scandal had taken the bloom off the junior mining stocks. Shares of Canadian-based Bre-X surged past $200 each before the company admitted that its high-grade gold samples from an Indonesian deposit were faked. Risk capital was diverted to the dot-coms.

Now, “the price of metals is coming up, and it’s sucking money back into this sector,” said Doug Silver, a mining analyst with Balfour Holdings in Denver.

Gold, trading at $450 per ounce, is up 30 percent since the first of the year. Prices for silver and industrial metals are also rising. Some of the jump comes from a weak U.S. dollar. Increased world demand for minerals is also driving up the prices.

The gains are luring risk-tolerant investors back to junior mining stocks.

Pennaluna & Co., a Coeur d’Alene stock brokerage specializing in penny mining stocks, has raised money in private placements for five companies over the past year. Many of the investors were from Florida and Texas. They also had oil and gas holdings.

“It’s the same kind of speculative market,” said Ron Nicklas, Pennaluna’s president. “These investors run in a whole different league than you and I in being able to gamble their money.”

Regionally, the money translates into cash flow and new projects for juniors.

Geologists are studying the closed Sunshine Mine in Kellogg, one of the world’s richest silver producers, with hopes of someday restarting it. Smaller mines in Idaho’s Silver Valley, some excavated by hand in the early 1900s, are getting re-explored with modern techniques.

Local companies are also using investment dollars to stake new claims in Nevada, Montana and Mexico.

Even juniors without cash to explore are wheeling and dealing. Their goal is to interest another small company in drilling on their claims, in return for future royalties if a mine is ever developed.

“You need a vibrant junior sector to take the risk that a large company might not,” said Ray De Motte, president of Sterling Mining Co. in Coeur d’Alene, whose firm is exploring the Sunshine Mine, and also has a project in Mexico.

“We’re the grass-roots side the exploration business,” adds Fred Brackebusch, president of New Jersey Mining Co. “The old timers walked over the land, panning for gold and looking for outcroppings. We do that too, but it’s much more high-tech.”

Eight years ago, Brackebusch and his son, Grant, reactivated New Jersey Mining, an inactive penny stock. Brackebusch, a mining consultant who travels worldwide, kept his day job. On the side, he assembled a portfolio of Silver Valley mining properties.

A small mill in Gold Run Gulch near Kellogg processes ore from the New Jersey Mine, grinding mineralized rock into powder so the gold can be removed. The company has six other projects, including the historic Golden Chest Mine near Murray, Idaho.

This year, New Jersey Mining raised $1 million to upgrade its mill and do exploration. Next year, Brackebusch hopes to raise $1.5 million.

He’s so busy working on mining projects that he’s having difficulty devoting time to his consulting business. But Brackebusch wants to get a few more mines into production before investor whimsy shifts.

“You’ve got to strike while the iron is hot,” Brackebusch said. “After the dot-com debacle, you couldn’t sell two cents worth of gold stocks …There’s no guarantee this will last forever.”

Goss knows that well. This time around, he kept his day job. When Goss mingles with other miners and geologists at the Northwest Mining Conference in Spokane this week, discussing Timberline Resources’ projects, he’ll be taking three paid vacation days from his appraiser job.

Like his investors, Goss is a speculator.

Since January, he and his board have worked to computerize Timberline’s stock records, raise money, and explore for silver, gold and copper. Goss isn’t drawing a salary. Like his investors, he’ll be rewarded if the company prospers, and the stock price rises.

His hard work is already paying off. Timberline’s market capitalization has grown to $3 million since January.

“In a sense,” he said, “we’ve created the money out of thin air.”