Nov 16

Written by:
11/16/2009 3:39 PM 

By Richard B. Stolley

ELKO, Nevada (Fortune) - At a time when local officials coast to coast are frantically slashing municipal budgets, furloughing employees, and trying to soothe recession-wounded constituents, Curtis Calder, the city manager in Elko, Nevada, has a hard time coming up with much to worry about.

Indeed, the economic news in this community of 19,000 is astonishingly cheerful: Housing prices are stable. Commercial building is up. Tourist events are drawing bigger crowds than last year. Unemployment is about as low as you'll find. The casinos are down only slightly. And the town's four legal brothels had a busy summer.

"Elko is the best place in Nevada to be," Calder said with a burst of exuberant confidence that would make any civic booster proud, "and maybe in the whole country."

What's the secret of the city's success? Gold. Lots and lots of it.

The mile-high land around Elko in the barren northeastern corner of the state contains a treasure trove of invisible specks of gold. Dug from open pit mines, tons of ore are put through a complex leaching process to extract the precious metal.

Nevada has the largest deposits of gold in North America, most of it in the Elko area. It ranks fourth in production in the world behind Australia, South Africa and China. This is a modern - if more modest - version of the bonanza that transformed California in 1849.

"Gold is a boom and bust industry," explained Calder. "When the rest of the economy drops, the price of gold goes up. We're pretty vibrant right now."

Elko was essentially a cow town until geologists found the ore (sometimes reddish, usually gray) in the hills outside neighboring Carlin in the early 1960's. The gold here isn't in the form of nuggets as in California, but what is technically called "disseminated submicroscopic gold." Armed with new technology for recovering the metal, the two biggest gold mining companies in the world moved in - first Newmont Mining (NEM, Fortune 500), based in Denver, and later, Barrick Gold (ABX), a Canadian firm with headquarters in Toronto.

The mining process in Elko is a long way from panning in a stream. Simply put, extracting the gold involves grinding the ore into a powder, sometimes subjecting it to intense heat, and then percolating it with a weak cyanide solution. At the end of this process, the invisible specks become molten gold, which is poured into bars called dorés. These bars are the size and shape of a loaf of bread and weigh about 60 pounds. They're transported by armored trucks (on a secret schedule to prevent hijacking) to refiners who produce bullion and sell it to banks and investors as well as manufacturers of jewelry, dental products, and electronics.

As the price of gold has more than doubled over the past five years, the mining companies have ramped up operations in Elko to take advantage of the opportunity. In 2008, Newmont produced 2.2 million ounces in Nevada and Barrick mined 2.7 million ounces, most of it in the Elko area, where the two companies presently operate 18 open-pit and eight underground mines. They employ some 7,000 workers - headcount has increased 5 percent a year for the past three years - and contribute a combined annual payroll of $410 million to the region. (Greater Elko has a total population of 44,000.)

The median family income here is $68,000, highest in the state. With overtime, an unskilled worker just out of high school can easily earn that much. "My older boy got into six figures, $105,000 one year," said Elaine Barkdull Spencer, executive director of the Elko County Economic Diversification Authority. "He was making more money than I was. I say, God bless mining."