vvEPA
United States
Environmental Protection
Agency
EPA 440/2-87-003
May 1-388-
Water
Economic Impact Analysis
of Final Effluent Limitations
Guidelines and Standards for
the Gold Placer Mining
Industry
QUANTITY
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TABLE OF CONTENTS
Page
INTRODUCTION 1-1
A. Background 1-1
B. Purpose 1-2
C. Industry Coverage 1-2
D. Control Technology Options 1-2
E. Organization of the Study 1-3
II. MARKET PROFILE II-l
A. Market Description II-l
B. Factors Affecting Gold Supply II-l
C. Factors Affecting Gold Demand II-5
D. Price Pass Through II-7
III. INDUSTRY DESCRIPTION AND PROFILE III-l
A. Gold Recovery Rate III-l
B. .Production Profile III-3
C. State Profiles III-7
IV. METHODOLOGY IV-1
A. Overview IV-1
B. Information Sources IV-2
C. Estimation of Current Operating Costs . IV-5
D. Estimation of Gross Operating Revenues IV-9
E. Baseline Operating Cost Estimates IV-10
F. Cost Factors IV-11
G. Representative Model Mines IV-15
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TABLE OF CONTENTS (cont.)
Page
H. Generation of Supply Curves IV-17
I. Decision to Operate IV-20
v. COST OF'COMPLIANCE v-i
A. Treatment Technology Options V-l
B. Recycling Treatment in Place V-2
C. Treatment Process Costs V-4
VI. REPRESENTATIVE MODEL PROFILES VI-1
A. Introduction VI-1
B. Baseline Mine Assumptions VI-1
C. Representative Model Mine Cost Variations VI-7
D. Representative Model Mines by Region and vi-12
Production Rate
VII. ECONOMIC IMPACTS VII-1
A. Introduction VII-1
B. Methodology VI1-2
C. Impact Analysis Results VII-9
VIII. SMALL BUSINESS ANALYSIS VIII-1
IX. LIMITS OF THE ANALYSIS IX-1
A. Specifying the Baseline Conditions IX-1
B. Assumptions for Baseline Conditions IX-1
C. General Accuracy IX-2
D. Data Availability IX-2
APPENDIX A
APPENDIX B
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I. INTRODUCTION
A. Background
The Environmental Protection Agency (EPA) is responsible for restoring and
maintaining the chemical, physical, and biological integrity of the Nation's
waterways. This authority is granted under the Clean Water Act (the Federal
Water Pollution Control Act Amendments of 1972 as amended by the Clean Water
Act of 1977 and the Water Quality Act of 1987). Pursuant to this authority,
EPA has proposed effluent guidelines and limitations to control the waterborne
discharges of the gold placer mining industry. This report describes the
economic impact of these rules.
The EPA originally proposed effluent limitations and guidelines for the
placer mining industry on November 20, 1985 (50 PR 47982). A notice of new
information presenting revised costs, impact, and performance data for the
industry was published on March 24, 1987 (40 CFR Part 440). The economic
impacts described in this report pertain to the final rules which consist of
the 1985 rules as modified by the 1987 notice.
The water pollution control regulations for the gold placer mining
industry considered in this rulemaking fall into three categories.
1. BPT - Effluent limitations based on the Best Practical Technology to
control conventional pollutants.
2. BAT - Effluent limitations based on the Best Available Technology
economically achievable for the removal of toxic and nonconventional
pollutants.
3. NSPS - New Source Performance Standards limiting effluents from new
industrial sources.
1-1
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B. Purpose
The economic impact analysis (EIA) presented in this document describes
the effects of all three categories of regulations: BPT, BAT, and NSPS. The
economic analysis begins by reviewing the cost of compliance with the
regulations. (The Development Document published with this rulemaking
describes compliance methods and costs in detail [EPA, 1987]). The analysis
then projects the impacts of these costs on the gold placer mining industry
throughout the United States including the decline in profitability of placer
mines, plant closures, job losses, and other effects.
C. Industry Coverage
This analysis covers mining operations in the United States that recover
gold from placer deposits. Placer gold mining in the U.S. occurs primarily in
eleven states: Alaska, Idaho, Montana, California, Wyoming, Colorado, Oregon,
South Dakota, Washington, Utah, and Nevada. Pit and lode gold mining are not
considered in this analysis because these types of mining operations are not
covered by the proposed regulations.
D. Control Technology Options
The regulations considered in this rulemaking include three major
alternative pollution control technologies:
1. Primary settling.
•
2. Primary settling plus recirculation of process water.
3. Primary settling plus chemical treatment of all process water.
EPA's Industrial Technology Division (ITD) identified the applicable
technologies and estimated the capital, operating, and maintenance costs for
each system (EPA, 1987).
1-2
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E. Organization of the Study
This information which follows is organized into eight chapters. Chapters
II and III provide background information for the EIA by describing the market
for placer gold and the structure and mining methods of the industry,
respectively. Chapter IV describes the methodology used to estimate the
economic impacts of the regulations. Chapter V reviews the pollution control
cost estimates developed by ITD. Chapter VI presents an economic description
of representative or "model* mines which are used in the analysis of
regulatory effects. Chapter VII describes the economic impact of each
regulatory option on the gold placer mining industry. Chapter VIII discusses
the effects of the regulatory options on small businesses. The limitations of
the analysis are described in Chapter IX.
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II. MARKET PROFILE
This chapter provides an overview of the placer gold market and the
factors affecting supply and demand. Following the market description, the
chapter assesses the ability of the placer gold mining industry to "pass
through' the regulatory costs by charging higher prices to their customers.
Throughout the chapter/ the major assumptions of the EIA concerning gold
market conditions are highlighted.
A. Market Description
Placer gold is produced at placer mines and sold in two distinct forms.
Some placer gold is sold in nugget form directly to jewelry makers, the
public, or other end users. Other mined placer gold is sold for further
processing at smelting establishments. While comprehensive statistics are not
available, the latter method of sale is most common. In Alaska, for example,
EPA estimates only 5 to 19 percent of the mined placer gold is sold in the
unprocessed form (Public Record: Memorandum from Onstream Resource Managers
to Mitch Dubensky, EPA Subject: Nugget Bonus/Premium).
The price of placer gold is based on the spot price of gold with various
adjustments based on gold quality and nugget size. Gold that is sold for
further processing generally commands the spot price minus a smelting fee.
Nuggets that do not require further processing generally command a higher
price.
B. Factors Affecting Gold Supply
The production of gold from placer mines is influenced primarily by three
factors: new discoveries, technological changes, and the price of gold.
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1. New Discoveries
Gold production has historically been influenced greatly by new
discoveries. In .a number of instances, major discoveries of gold have led to
the establishment of production centers large enough to have a major influence
on world gold markets. While new discoveries continue to occur, the gold
supply in recent years has been influenced primarily by technological factors
and by the price of gold.
2. Technological Change
Throughout the last sixty years, there have been several technological
advancements in the recovery of gold from placer mines. One of the most
significant advances was the introduction of lighter diesel engines in the
1930's, which made it possible to use diesel powered bulldozers, draglines,
and pumps in open-cut placer mining operations. Another significant
advancement has been the introduction of mobile gold ore processing systems
resulting in an increase in gold-recovery efficiency. These and other
technological improvements have made it possible to work gold-bearing deposits
which could not be mined earlier and to recover additional gold by remining
previously worked areas.
3. Price of Gold
The price of gold has always been an influential factor in gold
production. Prior to deregulation in 1971, the price of gold was stable at
$35.00 per troy ounce. Since deregulation, the price of gold has been
volatile, and has risen sharply on a number of occasions. Despite frequent
price fluctuations, prices have generally been far higher than in the pre-1971
era. These higher prices have resulted in an increased interest in placer
gold mining.
II-2
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Fluctuations in gold prices are influenced by many factors in the U.S. and
world economies, particularly the rate of inflation. When investors believe
that inflation is likely to rise, they tend to shift money into real assets
such as gold, resulting in a price rise. Conversely, in periods of low or
declining inflation, money is shifted into monetary assets, leading to a
decline in gold prices.
Table II-l provides several gold price time series for the period 1971
through 1987. From a 1971 average price of $41 per troy ounce, prices rose as
high as $875 in 1980, and have since declined to a 1987 average of $455.
Based on the data presented in Table II-l, this EIA assumes three different
gold prices: $300, $377, and $455 per troy ounce. These assumptions were
selected conservatively to fall within the middle to low end of the price
range for recent years. A justification of these price assumptions is
presented in Chapter IV.
The actual price received by placer miners supplying gold for fabrication
purposes are based on the world spot prices, minus the fee charged by smelters
for processing. Smelters may charge lower rates to miners who supply a higher
volume of gold. The economic methodology in this EIA reflects this practice
by varying the assumed smelting fee based on the mine size. Details of the
baseline price assumptions and adjustments are presented in Chapter IV.
Gold nuggets which are sold directly to jewelers usually bring a
substantially higher price per ounce than gold dust, depending on nugget size
and quality. Nuggets possess a value in excess of their gold content because
of their special attractiveness to the public. For this EIA, a "nugget bonus*
of 23 percent above the gold price is assumed for this type of production
(Public Record: Memorandum from Onstream Resource Managers to Mitch Dubensky,
EPA Subject: Nugget Bonus/Premium).
Gold production does not respond immediately to price changes. For
operators of existing mines, much of the cost of producing gold has already
been sunk (i.e., fixed costs). Even if prices fall, the operator may continue
to produce gold provided that the price is sufficient to cover variable
costs. In the long run, gold deposits will be mined only if prices are
II-3
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TABLE II-l
GOLD PRICES TIME SERIES 1971-1987 (DOLLARS PER TROY OUNCE)
COMEX,
PRICES
INC.3
IN
NEW YORK
YEAR
1971
1972
1973
1974^
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
198?e
HIGH
NA
NA
NA
1 NA
186
140
168
236
331
875
600
496
514
406
342
a American
LOW
NA
NA
NA
NA
136
102
132
166
290
453
394
295
372
305
281
AVERAGE
NA
NA
NA
NA
161
125
148
193
308
612
466
376
424
360
319
377
455
AMERICAN3
METAL
PRICES
HIGH
44
70
127
195
185
140
168
243
463
850
599
481
509
406
341
MARKET
IN LONDON
LOW
37
44
64
117
129
104
131
166
227
482
391
297
374
308
284
Metal Market. Various Years. Metal
bU.S. Department
D.C. :
U.S. Government
cAmerican
Bureau
of the Interior, U.s
Printing
of Metal
Office.
Statistics,
. Bureau
U.S.
PRICES
FROMh
ENGELHARD INDUSTRIES
HIGH
44
70
126
214
204
125
168
243
517
850
599
481
509
406
330
Statistics.
of Mines. Var
Inc. Various Years.
LOW
38
44
64
128
142
103
130
166
217
482
391
278
375
308
299
New York
AVERAGE
41
59
98
175
177
141
148
194
308
613
460
376
424
361
318
: Fairchild
ious Years. Minerals
LONDON
FINAL GOLD
PRICESC
FROM METALS WEEK
HIGH
44
70
127
195
185
140
162
227
455
675
557
444
491
394
341
Publishers.
Yearbook.
Non-ferrous Metal Data. New York
LOW AVERAGE
: 37
44
64
117
129
104
132
173
227
514
409
315
382
322
284
Washington,
: American
41
58
97
159
161
125
148
193
307
613
460
376
424
360
NA
Bureau of Metal Statistics, Inc.
^Comex began giving gold prices only in 1975.
e]987 average gold price based on May 1 to September 1.
NA = Not Available.
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sufficient to cover both the fixed and the variable costs (i.e., the total
co.st of the operation). EPA estimates that supply responses to price changes
may take three to five years.
C. Factors Affecting Gold Demand
Demand for gold comes principally from four major groups of users: (1)
jewelers and artists; (2) industrial users; (3) dentists; and (4) investors.
Table II-2 shows U.S. gold consumption by end use for the period 1975-1985.
Consumption for the period ranged from a high of 4.9 million ounces in 1977 to
a low of 3.1 million ounces in 1985.
Jewelry and art use of gold is the largest single category, accounting for
more than half of annual consumption. Some placer gold, principally in nugget
form, is used directly by these industries in an unprocessed form. A nugget's
suitability for such direct use depends on its size and artistic quality.
The industrial sector is the second largest consumer of gold. Because of
its high price, gold is used in industry only when there are specific
engineering requirements which cannot be met by substitute materials. Higher
gold prices have restricted industrial applications in recent years. The
electronics industry, the largest industrial consumer, has been forced to use
gold alloys more extensively to economize on gold consumption.
Dentistry is the third largest user category. Gold is used in this
profession for decorative or restorative purposes. Dental consumption of gold
is highly price sensitive. Gold consumption for dental uses declined sharply
in 1980 in response to the large run-up in gold prices.
Gold demand by individuals and institutions for investment purposes, the
final major user category, is highly responsive to the rate of inflation and
inflationary expectations. Demand in this category was highest during the
double digit inflation years of the late 1970's and has declined precipitously
in the 1980's. As illustrated in Table II-2, investor use of gold is the most
volatile end use category.
II-5
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TABLE II-2
U.S. GOLD CONSUMPTION, BY END USE
(THOUSAND TROY OUNCES)3
YEAR
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
JEWELRY
AND ARTS
2,080
2,562
2,653
2,651
2,688
1,505
1,730
1,954
1,666
1,709
1,643
INDUSTRIAL
1,059
1,233
1,209
1,313
1,406
1,287
1,210
1,102
1,032
1,084
1,055
DENTAL
595
694
728
706
646
341
314
358
360
363
394
SMALL
ITEMS FOR
INVESTMENT13
258
159
263
68
45
82
22
9
3
8
7
TOTAL
CONSUMPTION
3,992
4,648
4,863
4,738
4,785
3,215
3,276
3,423
3,061
3,164
3,099
*Gold consumed in fabricated products only. Does not include monetary
bullion.
^Fabricated bars, medallions, coins, etc.
Source: U.S. Department of the Interior, D.S. Bureau of Mines, various Years.
Minerals Yearbook. Washington, D.C.: U.S. Government Printing Office.
II-6
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D. Price Pass Through
Goid prices are determined in international markets which include a large
number of buyers and sellers. U.S. placer gold mining accounts for less than
2 percent of U.S. gold production, and an even smaller percentage of the world
total. Because of their minor role in world markets, this EIA assumes
conservatively that U.S. placer miners cannot pass through the cost of
pollution control requirements by raising prices. Therefore, the increased
costs of wastewater treatment are assumed to directly reduce the profitability
of affected operations. This assumption is discussed in more detail in
Chapter IV.
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II-7
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III. INDUSTRY DESCRIPTION AND PROFILE
This chapter describes placer mining in the United States. The first two
sections provide overview information concerning the rate of gold recovery
from ore and the total level of production from placer mines. The third
section provides detailed information concerning placer gold mining operations
in each of the eleven major producing states. Throughout these discussions,
the assumptions employed in this EIA are highlighted.
A. Gold Recovery Rate
The primary factor determining the rate of gold recovery in placer mines
is ore grade. Ore grade/ which is the percentage of raw gold in the ore,
varies both between and within regions. For this EIA, baseline assumptions
concerning typical ore grades for each region were developed based on
literature review, discussions with experts at the United States Geological
Survey (USGS) and the Bureau of Land Management (BLM), and an EPA survey of
mine operations conducted from 1984 through 1986. These baseline values are
presented in Table III-l.
The assumptions concerning typical ore grade for each region shown in
Table III-l are adjusted based on mine size. The mine sizes used in the table
are described in Section B, below. This is a modification of the economic
impact methodology used in the proposed rulemaking. The Agency believes that
larger mines can economically process lower grade ores than smaller mines due
to economies of scale. Therefore, this EIA assumes that large, open-cut mines
process ore 5 percent below the regional average grade. Small and very small
open-cut mines are assumed to mine ore 5 percent above the average grade.
Medium size open-cut mines are assumed to process ore of average grade.
A separate set of ore grade assumptions were established for dredge
mines. Dredge mines generally experience lower costs than open-cut mines and
therefore are assumed on average to mine lower grade ores. The assumptions
III-l
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I
NJ
TABLE III-l
ORE GRADES ASSUMPTIONS FOR THE EIA*
CATEGORIES
OPERATIONS
Large Dredges
Small Dredges
Large Open-Cut
Medium Open-Cut
Small Open-Cut
Very Small Open-Cut
REGION 1 REGION 2
NORTHERNS WESTERNS
.011
.008
.027 .027
.028 .028
.029 .029
.029 .029
(OUNCES OF GOLD PER CUBIC YARD)
REGION 3 REGION 4 REGION 5
EAST INTERIORS SOUTHWESTERNS SOUTH CENTRALa
— — —
.016
.017 .017 .015
.018 .018 .017
.019 .019 .018
.019 .019 .018
REGION 6 REGION
SOUTHEASTERN* LOWER
.008
—
.019 .013
.02 .014
.021 .015
.021 .015
7
48b
*Based on historical data and documented in the Public Record of this rulemaking (Section 12-4.1).
*
aDenotes regions of Alaska as identified in Figure III-l.
bRegion 7 is a composite of the lower 48 placer mining states.
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concerning ore grades for dredge mines in Table in-l are, therefore, taken
frpm the lower end of the grade range for each region.
Raw gold is commonly alloyed with silver and minor amounts of other metals
resulting in pure gold contents of 600 to 995 parts per thousand. The amount
of pure gold in the raw gold recovered in the mining operation is referred to
as fineness. As is the case with ore grade, the fineness of gold varies from
place to place. Generally, gold from the major deposits in the lower 48
states is of higher fineness than gold produced in most Alaskan placet mines
because lower 48 deposits are older, and therefore more silver has been
leached from the very small gold flakes. For the economic analysis, EPA
assumed an average fineness of 358 parts per thousand based on an EPA operator
survey (confidential section of Public Record).
Particle size is another raw gold characteristic that varies between
placer mines. Gold particles may consist of dust particles of 100 to 200 mesh
or nuggets with sizes from 14 mesh to more than 1 ounce. The smaller particle
size ranges are customarily sold in bulk. The larger nuggets may, because of
their beauty, be sold as individual pieces.
B. Production Profile
This section profiles gold production in placer mines including
discussions of total production levels, the market value of that production,
and capacity utilization in the industry.
1. Production Levels
Table III-2 presents estimates of placer gold production in the U.S. from
1981 to 1986. The statistics for 1981 through 1985, compiled by the U.S.
Bureau of Mines (BOM), show that production ranged from 28,927 to 50,587
ounces for those years. These estimates are greatly understated because many
mining establishments did not disclose their production levels in order to
III-3
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TABLE III-2
PRODUCTION AND VALUE OF U.S. PLACER GOLD
YEAR
1981
1982
1983
1984
1985
1986
aBureau of
U.S. PLACER
PRODUCTION, b AVERAGE
28,927
38,466
53,887
37,597
50,587
284,000e
Mines Minerals Yearbook 1985
GOLD PRICEC
3460
376
424
361
318
377
- Gold. United
ESTIMATED VALUEd
(IN MILLIONS
OF DOLLARS)
$13.3
14.5
22.8
13.6
16.1
107.1
States
Department of Interior.
bEstimates of U.S. placer gold production as reported by Bureau of Mines
is underestimated due to withholding of proprietary information. See Bureau
of Mines report for further details.
cEngelhard Industries quotation.
^Production volume times average price.
eBased on EPA estimates using model mines.
III-4
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protect proprietary information. EPA generated its own estimate of placer
mine gold output for 1986 based on its analysis of mines in each state. The
EPA estimate of 284,000 ounces per year greatly exceeds the BOM estimates.
However, the Bureau of Mines recognizes their low gold production estimates by
acknowledging that the State of Alaska estimates are four times greater than
the BOM data. EPA's -estimates of Alaskan gold production, however, are
consistent with the State of Alaska's figures. Given that BOM's estimates
appear to be severely understated, there is no direct, available data to
corroborate EPA's estimates of production in the lower 48. However, the
Alaskan figures appear to corroborate generally EPA's approach to estimating
gold production.
The EPA estimates of placer gold production are detailed in Table ni-3
for Alaska and the lower-48 states, disaggregated by mine size categories.
The estimate of gold production in Alaska is close to that published by the
State of Alaska (Alaska's Mineral Industry, 1986). The State's data estimated
mechanical open-cut mine production to be 175,000 ounces in 1984; 190,000
ounces in 1985; and 160,000 ounces.in 1986. Since the available data for 1986
verifies the accuracy of EPA's production estimates, EPA uses its 1986
estimates as the basis for the impact assessment in this EIA.
2. Value of Production
Value of placer gold production for the years 1981 through 1986 are
presented in the right hand column of Table III-2. These values were obtained
simply by multiplying the estimated production levels by the price of gold.
Based on EPA's estimates of production levels from 1986, the value of placer
gold mined in that year was approximately $107 million.
3. Capacity Utilization
In the original rulemaking proposal, EPA based its mine size categories on
daily processing volumes. Based on additional analysis, EPA has revised this
approach and uses annual volumes as the basis for mine size classifications
for this EIA. There are several reasons for this approach:
III-5
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TABLE III-3
OUNCES OF GOLD PRODUCED BY MINE TYPE: 1986
MINE TYPE ALASKA LOWER 48 STATES
Very Small Open-cut 19,900 21,400
(1, 500-35,000 cubic yards
annually)
Small Open-cut 34,400 42,000
(35,000-70,000 cubic yards
annually)
Medium Open-cut 69,400 44,400
(70,000-230,000 cubic yards
annually)
Large Open-cut 39,800 3,800
(230,000-340,000 cubic yards
annually)
Small Dredge 3,300
(216,000 cubic yards annually)
Large Dredge 8,800
(800,000 cubic yards annually)
Totals with Dredges 175,600
Totals without Small Dredges 172,200 111,600
Source: EPA estimates based on model mines developed for this analysis.
III-6
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• Mine and plant capacity are designed and costed based on annual volumes,
• Daily capacity does not accurately predict annual production since
equipment can break down for hours or days, resulting in little or no
production for certain time periods.
• Mines are ultimately concerned with annual production volume for
forecasting gold output and revenues.
The annual processing volumes selected to define each size category are shown
in the left-hand column on Table III-3.
EPA's modelling for this EIA uses capacity utilization assumptions based
on research and discussions with industry participants. The key assumptions
include:
1. The mines typically operate 50 out of 60 minutes per hour during the
day's shifts.
2. Very small open-cut mines operate for 60 out of 92 available days.
3. Small open-cut mines operate for 75 out of 107 available days.
4. Medium open-cut mines operate 83 out of 122 available days.
5. Large open-cut mines operate 85 out of 122 available days.
C. State Profiles
Alaska is well known for its placer gold mining and produces far more of
this type of gold than any other state. BLM information on mine claim filings
(Table III-4) indicates that 10 other states (Arizona, California, Colorado,
Idaho, Montana, Nevada, New Mexico, Oregon, Utah, and Wyoming) account for
more than 99 percent of the placer claims filed in the continental U.S.
A state by state review of operating placer mines (Table III-5) indicated
that two states with substantial claims (Arizona and New Mexico) had little if
any active mining; and that two states that were not prominent in the claims
data (South Dakota and Washington) had several active placer mines.
III-7
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TABLE III-4
PLACER MINE CLAIMS FILED WITH THE BUREAU
OF LAND MANAGEMENT SINCE 1976*
STATE
Arizona
California
Colorado
Eastern States
Idaho
Montana
Nevada
New Mexico
Oregon
Utah
Wyoming
Total
NUMBER
OF CLAIMS
22,889
45,101
10,675
386
8,406
8,025
25,116
6,680
11,604
16,033
15,008
169,923
PERCENT
13
27
6
<1
5
5
15
4
7
9
9
100
aAlaskan claims data are on a different
system and must be obtained from that state.
Source: Information Service Center, Bureau of
Land Management, Denver, Colorado.
III-8
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TABLE III-5
ESTIMATED NUMBER OF ACTIVE OPEN-CUT PLACER GOLD MINES IN 1986
STATE
Alaska
Idaho
Montana
California
Colorado
Oregon
South Dakota
Wyoming
Washington
Utah
Nevada
Total
VERY SMALL/SMALL3
150
61
51
23
12
44
16
7
14
4
3
385
MEDIUM5 LARGE0
32 8
3
5 1
3
1
5
2
1
2
1
__ -_
60 9
TOTAL
190
69
57
26
13
49
18
8
16
5
3
454
aVery small mine size is equivalent to 18,000 cubic yards/yr. Small
mine size is equivalent to 35,000 cubic yards/yr.
bMedium mine size is equivalent to 150,000 cubic yards/yr.
cLarge mine size is equivalent to 340,000 cubic yards/yr.
Source: Data provided by state agencies.
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III-9
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The estimated number of active mines presented in Table III-5 were based
on information collected from various state agencies. This data is uncertain
and subject to change due to the transient nature of the business as well as
the remote locations of many operations. EPA frequently received differing
estimates of the number of active mines from different states agencies. The
estimates shown in Table III-5 were selected to represent the midpoint of the
range of available estimates. Table III-6 shows the range of estimates of
active placer mines obtained by EPA from differing data sources.
An additional difficulty in estimating the number of placer mines is that
the operating status of a given mine may be difficult to determine. A mine's
status may range from early exploration with no sluicing to full operation.
For example, the Montana Directory of Mining Enterprises, which lists placer
mines according to their operating status, showed that in 1983 an estimated
55% of mines were developmental, 18% were inactive, 13% were producing, 11%
were both producing and developing the claim, and 3% were of unknown status.
A mine may shut down temporarily due to equipment failure or indefinitely due
to claim litigation. Sometimes a mine will be in full operation for a number
of weeks, but the owners then find that the gold is not as plentiful as hoped
and the mine is, therefore, shut down.
1. Alaska
a. Number and Location of Mines
Alaska has the largest number of active placer mines of any state in the
U.S. EPA compiled information concerning the number, type, and size of
Alaskan placer mines through contacts with several state agencies and a number
of individual miners. Table III-7 presents these estimates', dissaggregated by
region. Figure III-l designates the regional boundaries.
Most Alaskan mines use open-cut methods; however, there are several
dredges operating in the state (Table III-7). Of the four active dredges in
the state, three are very small dredges that are not covered in this
111-10
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TABLE III-6
ESTIMATED NUMBER OF ACTIVE OPEN-CUT MINES
STATE
Idaho
Oregon
Montana
California
Colorado
South Dakota
Wyoming
Washington
Utah
Nevada
New Mexico
Total
IN LOWER 48 STATES
ESTIMATED
NUMBER OF
MINES3
69
49
57
26
13
18
8
16
5
3
0
264
IN 1986
ESTIMATED
NUMBER OF
LOW
29
25
46
26
4
18
8
1
5
0
#
0
162
RANGE OF
MINESb
HIGH
109
72
68
26
21
18
8
31
5
. 6
0
364
aMid-point of the range.
bLow range estimate based on state discharge 'permits
and site visits. High end of range results from combining
mine information from several state agency sources'which
provided mine names and locations.
III-ll
-------
I
(-•
K)
TABLE II1-7
ESTIMATED NUMBER OF ACTIVE ALASKAN PLACER GOLD MINES BY REGION AND SIZE IN 1986
REGION/SIZE
1,500-35,000
(yd^ annually)
VFRY SMALL OPEN-CUT
35,000-70,000
(yd^ annually)
SMALL OPEN-CUT
>70 000-230,000
(yd^ annually)
MEDIUM OPEN-CUT
>230,000
(yd3 annually)
LARGE OPEN-CUT
Very Small Dredge
Small Dredge
Large Dredge
Totals
REGION 1
NORTHERN
2
1
1
0
0
0
0
A
Source: Alaska's Mineral Industry
REGION 3 REGION 4
REGION 2 EASTERN SOUTH-
WESTERN INTERIOR WESTERN
16 34 13
14 32 12
6 13 6
142
300
000
100
41 83 33
1986. Office of Mineral Development,
REGION 5 REGION 6
SOUTH SOUTH-
CENTRAL EASTERN
13 1
11 1
5 1
1 0
0 0
0 0
0 0
30 3
Division of Mining, Division
PERCENT
OF
TOTAL TOTAL
79 41.0
71 37.0
32 16.0
8 4.0
3
0
1 2.0
194 100.0
of Geological and
Geophysical Surveys and EPA estimates on size distribution,
2022C
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FIGURE III-l
LOCATION OP PLACSP. GOLD MIMING AREAS (SHADED) IN ALASKA
REGIONS
I Northern
II Western
III Eastern Interior
IV Southwestern
V South-central
VI Alaska Peninsula
111-13
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rulemaking. One small dredge, though not active in 1986, is expected to be
covered by the rulemaking.
b. Employment
The Agency estimates that the active.placer mines in Alaska employ
approximately 919 persons. Based on the Agency's review of employment
patterns, the economic modelling in this EIA assumes that total employment per
mine consists of 2 employees for very small open-cut mines, 3 employees for
small open-cut mines, 10 employees for medium open-cut mines, 20 employees for
large open-cut mines, 3 employees for very small dredges, and 68 employees for
large dredges (Table III-8).
c. Mine Size
For purposes of this EIA, EPA established mine size categories based on
the annual quantity of ore processed. For other industries, revenues are
frequently used as the measure of establishment size to categorize firms.
However, because gold recovery rates can differ significantly from one placer
mine to another, revenues are often not a true indicator of the size and scope
of a placer mining operation. The Agency determined that the quantity of ore
processed provided the most useful measure of mine size for the purpose of
analyzing this rulemaking.
Table III-9 presents the mine size distribution for Alaska for 1986 based
on 1987 placer mining permits. Approximately 79% of Alaskan placer mines are
very small or small; 17% are medium; and 4% are large. Operations processing
less than 20 cubic yards per year are considered recreational/assessment
mines. These fall outside the scope of the final regulations and are not
considered here.
d. Production
Since the early 1970's, there has been a resurgence in Alaskan placer
mining due primarily to the dramatic increase in gold prices. Also, the
111-14
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TABLE III-8
NUMBER OF MINES AND EMPLOYEES BY MINE SIZE IN ALASKA, 1986
MINE TYPE/SIZE
Very Small Cut
Small-Cut
Medium-Cut
Large-Cut
TYPICAL
NUMBER OF
EMPLOYEES
2
3
10
20
NUMBER
OF MINES
79
71
32
8
TOTAL NUMBER
OF EMPLOYEES
PER SIZE GROUPa
158
213
320
160
Small Dredgeb
Large Dredge
Total
68
1
191
68
919
aProduct of multiplying number of employees times number of
mines.
bThe small dredge was not active in 1986, but is assumed to be
covered by this rulemaking. Thus, a total of 192 mines are
considered in the impact chapter.
Source: EPA estimates based on model mine analysis.
111-15
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TABLE III-9
SIZE DISTRIBUTION FOR ALASKAN OPEN-CUT
PLACER
MINES, 1986
GRAVEL
PROCESSED
ANNUALLY
(CUBIC YARDS)
1,500 - 35,000
35,000 - 70,000
35,000 - 230,000
>230,000
Total
GRAVEL PRO-
CESSED/DAY
(YARDS /DAY)
20 - 466
20 - 933
934 - 2770
>2770
NUMBER OF
MINES
79
71
32
8
190
Source: EPA estimates. See Table IV-6.
111-16
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completion of the Alaska pipeline during this time period provided ready
access to a used earth-moving equipment, skilled operators, and investment
capital. As a result of these factors, new operations were started, and
abandoned mines were reopened. The level of placer gold production has risen
to more than 170,000 ounces per year in 1986 (Table 111-10). The value of
Alaska placer gold production for that year was nearly $65 million.
As shown in Table 111-10, gold production has been stable for the past
several years. Gold production was estimated at 169,000 ounces in 1983 and
172,200 ounces in 1986. This relatively stable gold production estimate comes
despite a thirty-six (36) percent decline in the number of active mines.
2. Idaho
a. Number and Location of Mines
EPA records show 29 active placer mines in Idaho based on a review of
water quality permits. Information obtained from the Idaho Office of Lands
and Mine Safety and from the Mine Safety and Health Administration (MSHA)
shows the existence of 80 additional mines. Thus, the total number of active
mines in Idaho probably falls somewhere between 29 and 109. As described
above, throughout this EIA the midpoint of available estimates (69 mines), is
used as the baseline level of activity.
The Idaho counties with placer mines are shown in Figure III-2. Three
Idaho counties—Idaho, lemhi, and Boise—each contain more than ten placer
mines. More than half of Idaho's active placer mines are located in Idaho
County.
b. Employment
A review of state mine permit applications provided employment statistics
for 55 placer mines (Table III-ll). An estimated 56 percent of these mines
employ 1 to 2 persons. None of the Idaho mines have more than 12 employees.
The average for the 55 mines is 3.3 employees.
III-7
-------
TABLE 111-10
AMOUNT AND VALUE OF ALASKA'S PLACER
GOLD PRODUCTION, 1983-1986
ESTIMATED VALUE
PRODUCTION AVERAGE GOLD PRICEb (DOLLARS IN
YEAR (TROY OUNCES) (DOLLARS PER TROY OUNCE) MILLIONS)
1983
1984
1985
1986
169,000
175,000
190,000
I72,200d
*424
361
318
377
$71.7
63.2
60.4
64.9
Alaska's Mineral Industry, 1985. Special Report 39.
Table 5. Division of Geological and Geophysical Surveys.
average gold price (Table II-l, Engelhard, Industries)
for the year.
cProduction volume multiplied by the average price.
<*EPA production estimate based on model mine analysis.
111-18
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FIGURE III-2
MAP OF COUNTRIES LOCATES IN WESTERN STATES THAT CONTAIN
PLACER.GOLD MINES
Counties with 1 to 9 gold placer mines
Counties with 10 or more gold placer mines
111-19
-------
TABLE III-ll
DISTRIBUTION OF NUMBER OF EMPLOYEES
FOR
IDAHO PLACER GOLD MINES
NUMBER OF EMPLOYEES
1-2
3-4
5-6
>6
Total
NUMBER OF MINES
31
15
5
4
55
PERCENT
56
27
9
8
100
Source: This distribution is based on information from the
Mine Safety and Health Administration and from the
Idaho Department of Lands and Mine Safety.
111-20
-------
c. Mine Size
State mine permit information was also used to establish the size
distribution of Idahq.'s mines. Information concerning the quantity of gravel
washed per hour was available for 38 mines (Table 111-12). For those mines,
slightly more than half washed fewer than 20 cubic yards per hour. The
average mine washed approximately 30 cubic yards per hour. Information
concerning the quantity of gravel washed per day was available for 25 mines
(Table 111-13). The median daily process volume is between 201 and 500 cubic
yards of gravel.
d. Production Levels
No reliable information concerning Idaho's placer gold production was
available from existing data sources. However, data are available for overall
gold production which includes both lode and placer gold (Figure III-3). Gold
has been produced in Idaho since 1863 when the first records were kept, and
production peaked in the 1860's and 1870's at more than 325,000 ounces per
year. Since then, production has risen and fallen several times. Since the
early 1950's, overall gold production has been less than 15,000 ounces per
year.
3. Oregon
EPA previosuly estimated that there were 25 to 50 gold placer mines in
Oregon. However, information obtained from the Oregon Department of
Environmental Quality indicates that there are 72 placer gold mines in the
state. For this EIA, the midpoint of the range of available estimates, a
total of 49 mines, is assumed.
Figure III-2 shows the location of Oregon's placer mines. Three
counties—Jackson, Baker, and Josephine—each contain more than 10 mines. No
information is presently available concerning the size, employment, or
production levels of Oregon's mines.
111-21
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TABLE 111-12
SIZE DISTRIBUTION OF IDAHO MINES
BASED
GRAVEL WASHED
(YD/HR)
0-20
21 - 50
51 - 80
>80
Total
ON HOURLY PROCESS VOLUME
NUMBER OF MINES
20
13
5
0
38
PERCENT
51
33
13
3
100
Source: EPA developed this distribution based on
permit information obtained from the Idaho
Department of Lands and Mine Safety.
111-22
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TABLE II1-13
SIZE DISTRIBUTION OF IDAHO MINES
BASED ON DAILY PROCESS VOLUME
GRAVEL WASHED
(YD/DAY) NUMBER OF MINES
0-200 9
201 - 500 7
501 - 800 4
>800 5
Total 25
PERCENT
36
28
16
20
100
Source: Water effluent permits.
111-23
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FIGURE III-3
ANNUAL GOLD PRODUCTION IN IDAHO, 1363-1977
(THOUSANDS OF OUNCES)
400 .
350
300
250 .
200
150
100 J
50
I^^MH^^HMMMI^I^^^B^^M^^MBMiVi^^^M^*^B**i^^^B^^M^^^^l"^^^^^HlBWI^B^BBi^*^^BiM*M^HMMMMH^^^^^^
1870 1880 1890 T9QO 1910 1920 1930 1940 i960 I960 1970 198°
Source: Data for 1863-1942 from Staley (1946) and data for 1943-1977 from
the U.S. Bureau of Mines, Minerals Yearbook, 1943-1977.
111-24
-------
4. Montana
a. Number and Location of Mines
Based on a review of water discharge permits, EPA previously estimated
that there were 46 gold placer mines in Montana in 1984. MSHA records showed
the existence of an additional 22 mines. Thus, there are a minimum of 46 and
a maximum of 68 mines in the state. The midpoint of this range, 57 mines, is
selected for this analysis. The counties in Montana with mining activity are
shown in Figure III-2.
b. Employment
Employment information was available for 32 mines in Montana (Table
111-14). Sixty-eight percent of the mines have 4 or fewer employees and none
have more than 10 employees. The average employment level is 3.7 employees
per mine.
c. Mine Size
Information concerning the quantity of gravel processed was available for
42 of the mines in Montana (Table 111-15). The majority of the mines (55
percent) wash fewer than 100 cubic yards per day. Only 16 percent processed
more than 300 cubic yards per day.
d. Production
The BOM estimated that just eight troy ounces were produced in Montana in
1982. .However, this number is vastly understated to protect proprietary
industry data. EPA survey information indicates that three Montana placer
mines alone produced a total of 5,460 troy ounces in 1984. Total production
in this state is unknown, but is certainly far greater than BOM estimates.
111-25
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TABLE 111-14
DISTRIBUTION OF NUMBER OF EMPLOYEES
NUMBER OF
1-2
3-4
5-6
>6
Total
FOR MONTANA PLACER MINES
EMPLOYEES NUMBER OF MINES
11
11
6
4
32
PERCENT
34
34
19
13
100
Source: This distribution is based on information
provided by the Denver Office of the Mine
Safety and Health Administration.
111-26
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TABLE 111-15
SIZE DISTRIBUTION OF MONTANA PLACER MINES
MINE SIZE
(YD/DAY)
0 - 100
101 - 200
201 - 300
301 - 800
>801
Total
BASED ON DAILY PROCESS VOLUME
NUMBER OF MINES
23
5
7
7
0
42
PERCENT
55
12
17
16
0
100
Source: Frontier Technical Associates Memorandum to
EPA, November 16, 1984.
111-27
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5. California
a. Number and Location of Mines
Information obtained by EPA from MSHA indicates that there were 26 placer
mines in California. This estimate appears to be understated since California
has recorded more claims with BLM since 1976 than any other state in the
continental U.S. Further, the BOM estimates that California is second only to
Alaska in placer gold production. However, based on the lack of any
additional data, the MSHA estimates are used in this EIA. The location of
California mines by county is shown in Figure III-2.
b. Employment
Employment information was available for 14 of the 26 mines in the MS MA
data base (Table 111-16). Apcoximately 58 percent of the mines fall in the 3
to 6 employee categories. The Yuba dredge, with approximately 75 employees,
is the largest placer gold mine in the U.S.
c. Mine Size
No information is available on the size of placer gold mines in California
with the exception of the Yuba dredge. This dredge has an annual capacity of
4.5 million cubic yards. Actual processing volume in 1984 was 2.6 million
cubic yards.
d. Production
The BOM estimates that 7,798 troy ounces of gold were produced in
California's placer mines in 1982. As described above, estimates from BOM
publications may greatly understate actual production. However, no other
estimates of placer gold production for California have been obtained as yet
by EPA.
111-28
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TABLE 111-16
DISTRIBUTION OF NUMBER OF EMPLOYEES
PER MINE FOR 1
4 CALIFORNIA PLACER
MINES
NUMBER OF EMPLOYEES
1-2
3-4
5-6
>6
Total
NUMBER OF MINES
2
4
4
4
14
PERCENT
13
29
29
29
100
Source: Mine Safety and Health Administration, 1984,
111-29
-------
6. Colorado
a. Number and Location of Mines
EPA water quality permit records show a total of four Colorado placer
mines with discharge permits. MSHA records show a total of 18 placer gold
mines in the state. Only one mine was common to both lists. Thus, there are
between 4 and 21 mines in the state; and the midpoint of these estimates is
13. The location of these mines by county is shown in Figure III-2.
b. Employment
Employment information was available for 14 placers gold mines (Table
111-17). Approximately 65 percent of the mines have fewer than 4 employees.
The average employment level in this data is 5.3 employees per mine.
c. Mine Size
There is very little information available concerning the size of
Colorado's placer mines. The State of Colorado reported the processing level
of only two mines, one at 500 tons of gravel per hour and the other at 300
tons per hour. EPA permit records showed processing information for only
three mines, one at 100-150 cubic yards per day, a second at 150 cubic yards
per day, and a third at 135 cubic yards per day. None of the available data
series reported gold production levels for Colorado's placer mines.
7. South Dakota
EPA estimates the number of gold placer mines in South Dakota at 13, based
on information from the State and MSHA. The location of these mines by county
is shown in Figure III-2. No information was available on the employment,
processing volume, or gold production from these mines.
111-30
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TABLE II1-17
DISTRIBUTION OF NUMBER OF EMPLOYEES
NUMBER OF
1-2
3-4
5-6
>6
Total
FOR 13 COLORADO PLACER MINES
EMPLOYEES NUMBER OF MINES
3
6
2
3
14
PERCENT
21
44
14
21
100
Source: Mine Safety and Health Administration.
111-31
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8. Wyoming
EPA estimates that there are 8 placer mines in Wyoming based on a review
of its permitting records. The location of these mines by county is shown in
Figure III-2. The only size information available for these mines was the
total acreage of each mine, which were estimated as follows:
• 1 mine at 1 acre
• 2 mines at 40 acres
• 2 mines at 60 acres
• 1 mine at 480 acres
• 1 mine at 640 acres
• 1 mine at 925 acres
No employment, processing volume, or gold production information was available
for these mines.
9. Washington
NSHA records show the existence of only one mine in Washington in 1984.
It is located in Kittitas county and has one employee. No size information is
available for this mine. EPA reported that there were 30 placer mines in the
state in 1983. The midpoint of available estimates is, therefore,
approximately 16 mines. There was no available information on employment,
processing volume, or placer gold production for these mines.
10. Utah
Based on a review of MSHA records, there are 5 placer mines in Utah. The
location of these mines by county is shown in Figure III-2. These mines
employ an average of five persons. No processing volume or gold production
information was available for these mines.
111-32
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11. Nevada
MSHA and state agency records indicate that there are no placer mines in
Nevada. However/ EPA previously estimated that a total of six mines operated
in that state. The midpoint of these estimates is three mines. There was no
available information concerning employment, processing volume, or gold
production levels for this state.
2019C
111-33
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IV. METHODOLOGY
A. Overview
This chapter describes the methodology and assumptions used to analyze the
economic impact of effluent limitations on the placer gold mining industry.
The economic impacts are the result of the capital and operating costs of
compliance with the regulations. These costs are detailed in Chapter V.
To the extent that the compliance costs raise the production costs of
placer mines, several effects are possible:
• Some or all of the costs are passed through to consumers in the form of
higher prices;
• Some or all of the costs are passed backward in the form of lower
payments for factors of production including labor, equipment, and
supplies; and
• The mines may absorb the cost increase, resulting in reduced
profitability and possibly in curtailed operations and/or closures.
The first response is not likely to occur. Placer gold production from
U.S. mines represents less than one percent of the world market. U.S. placer
gold producers should therefore be considered price takers; their ability to
influence price is negligible.
The second effect also is not likely to be significant. Reduced demand by
placer mines for labor, equipment, and materials could result in lower prices
for these factors of production only if placer mines were a major buyer.
However, placer mining use of labor and construction equipment represents a
negligible share of the market for these factors of producti-on. Therefore, it
is not likely that the mining operations will be able to obtain any price
concessions to defray their regulatory costs.
Our conclusion is that placer miners will have to absorb the regulatory
costs, directly reducing their profitability. An economic model that
IV-1
-------
estimates baseline (i.e., prior to imposing regulatory controls or expenses)
profitability and post-compliance profitability is used to examine the
economic impacts. These models are based on a single-season time horizon.
That is, it is assumed that the miners weigh economic and other factors each
year before deciding whether to operate.
Because the mining operations must absorb the regulatory costs, the
regulations could result in curtailed operations or closures. In this event,
there would be job losses, production losses, and community dislocations. The
following sections describe the data sources and techniques used to measure
these potential effects.
B. Information Sources
The data sources used in support of this EIA include Federal government
agencies, state agencies, published literature, industry and vendor sources,
transportation companies, and other sources. These sources are described in
detail below.
1. Federal Government Agencies
U.S. Geological Survey; This source provided ore grade data, permafrost
characteristics, engineering data, weather and seasonal information,
historical information on placer mines and mining techniques in various
regions and districts, ore deposit environments, and prospecting information.
U.S. Bureau of Mines: This source provided information on placer mining
techniques, mining costs, historical trends, gold production, engineering
parameters for mine design, and the use of flocculents in U.S. placer mines.
U.S. National Park Service, U.S. Bureau of Land Management, U.S. Forest
Service, U.S. Department of Labor, Mine Health and Safety Administration:
These sources provided information regarding active permits, active placer
IV-2
-------
mining areas, patents, access for mining districts, and operational
characteristics and sizes for active placer mines.
U.S. Environmental Protection Agency: The Agency provided a variety of
placer miner information including the results of surveys conducted by Agency
representatives and contractors through the 1986 mining season, data for
development and design of baseline model mines (i.e., equipment listings of
make, model, and age), information pertaining to water treatment and water use
at U.S. placer gold mines, and studies to determine fine gold recovery and
compliance information.
2. State Government Agencies
The State of Alaska provided numerous studies and reports relevant to
placer gold mining. Data were obtained regarding gold fineness, geology,
permafrost, current and historical placer mining techniques, effluent water
treatment, the effects of adverse water quality on aquatic life, heavy metal
content of streams, the Placer Mining Grants Program, and permits and
regulations governing access, taxation, operations, labor laws, wage rates,
and transportation. The states of Nevada, California, Idaho, Montana,
Colorado, Oregon, and Washington provided information regarding active
districts, mine size, permits, wage rates, mine technology, and geology.
3. Published Literature and References
EPA surveyed library and periodical literature for books and articles
regarding all aspects of the placer mining industry. Papers dating from 1900
to the present were obtained from the proceedings of professional societies
such as the Society of Mining Engineers and the International Gold and Silver
Conferences.
IV-3
-------
4. Industry and Vendor Sources
Industry information was obtained primarily through direct discussions
with mine operators and through a review of data submitted by the operators to
EPA and BLM. EPA contractors provided mining and ore grade data from various
regions and districts including engineering reports and drilling data. The
Alaska Miner's Association and the Placer Miners of Alaska also provided
information to EPA.
Suppliers and vendors of heavy mining equipment, contract engineering
services, and process equipment were contacted also. Industry publications
listing new and used equipment prices were used extensively. The principal
sources of vendor information regarding placer mining equipment were the
Caterpillar Tractor Company dealers, several placer equipment manufacturers in
the U.S. and Canada, pump and pipe vendors, and local equipment dealers in
placer mining areas.
5. Transportation Companies
Transportation and service companies contacted included Southern Pacific
Railroad, Consolidated Preightways, Mark Air, Air Logistics of Alaska,
Northern Air Cargo, Regal Air and Lynden Transport in Anchorage, Alaska,
Pacific Alaska Lines, Alaska Railroad, Alaska Marine Lines, and crowley
Marine, all of which serve the Pacific Northwest and Alaska. Estimates of
camp cost and mobilization were obtained from Atco Structures, Alaska Tent and
Tarp, and Greer Tank in Anchorage.
6. Other Sources
In addition to those organizations mentioned above, several individuals
and specialists were helpful in obtaining or applying data used in the
analysis. These individuals include John Wells, author of Placer Evalution,
Principles and Practice; Dr. Bruce M. Davis, a Geostatistician at St. Joe Gold
IV-4
-------
Company; David Kopp, Charles McLeand and Jim James of Yuba Placer Gold
Company; C.C. Hawley of Northland Dredging; Denis Campion of Nome, Alaska;
staff in the Reno office of the Industrial Company (mine constructors); Ralph
Loyd of the California Division of Miners and Geology; Glenn Aikens and Bill
Britt of Dowl Engineers in Anchorage; Karl Hanneman, a mine operator in
Fairbanks; Howard McWilliams, a mine owner in Anchorage; and John Miscovich, a
mine operator in Flat, Alaska.
C. Estimation of Current Operating Costs
1. Operating Cost Components
The costs of operating and maintaining a gold placer mining operation
include the following:
• Direct labor
• Labor support
• Energy
• Supplies/maintenance services
• Smelter charges
• Royalties and Exploration
• Equipment leasing
• Debt service
• Reclamation
• Indirect operating costs
Each of these cost categories are described in detail below.
a. Direct Labor costs
The direct labor costs for a gold placer mine include the wages for
equipment operators, foreman, and laborers. In addition to direct wages, this
IV-5
-------
EIA added a "benefits* cost to the workers' wages to account for insurance,
social security, and other benefits. This additional cost varies widely among
the placer gold mines from zero to about 30 percent of wages for some of the
larger operations. A 15 percent "benefits" cost was applied to all workers'
wages.
b. Labor Support Costs
Labor support costs include salary expenditures for managerial and support
staff such as supervisory engineers, camp cooks, secretaries/ bookkeepers, and
others.
c. Energy Costs
For most of the gold placer mines, energy costs consist primarily of
purchased fuel. In some cases, a mine will purchase electricity from a public
utility, but this is generally more common in the Lower 48 states than in
Alaska. In most cases, electricity is generated onsite from purchased fuel.
In addition to electricity generation, fuel is also used for equipment
operation. The fuel costs depend on the type of equipment required at the
mine site, the total number of hours the equipment is operated, the price of
fuel, and the cost of transporting fuel to the mine.
d. Supplies/Maintenance Service Costs
Supplies at the mine site can generally be divided into two major
components: 1) campsite supplies and 2) maintenance supplies. Because most
of the gold placer mines are far from housing and service facilities, high
transportation costs make daily commuting impractical. Therefore, campsites
need to be established, and food and other amenities have to be stored at the
mine site. Maintenance supplies generally include replacement parts and
lubrication materials as needed to service heavy equipment. Maintenance
service consists of offsite as well as onsite expenses for parts and labor to
repair equipment. Because of the expense of offsite maintenance, which
IV-6
-------
requires large transport expenses and downtime, placer miners will often
perform most of their maintenance onsite.
e. Smelter Charges
Smelter fees generally are individually negotiated agreements between the
smelter owner and miner based upon the frequency and amount of raw gold
supplied. A smelter receiving timely and frequent shipments of raw gold from
the miner will, on average, charge a lower smelting fee to ensure a continuous
supply of work. Smelter fees depend also on the weight of the gold shipped.
Gold shipped to a smelter after being corrected for fineness is subject to
smelter charges. Adequate data are not available to make precise estimates
for every region, so the following general percentages given below were used
for all cases.
Mine Size Smelter Pees (%)
Very Small Open-cut 5
Small Open-cut 5
Medium Open-cut 1.4
Large Open-cut 1.3
Small Dredge 1.4
f. Royalty/Exploration Cost
Royalty costs are the fees paid to the owners of the mineral rights on
lands where gold mining operations are located. The royalty payments are
customarily deducted from gross sales or net smelter return (NSR). EPA
contacted the Alaska Department of Revenue in an effort to determine the
nature and extent of royalty payments associated with gold placer mining. The
Department stated that all mining tax returns are confidential and are not
available for review. Furthermore, the Department's data do not differentiate
between the various types of mining. Thus, even if available, the data could
not distinguish royalties from placer gold mines from the royalties associated
with other minerals.
IV-7
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EPA reviewed questionnaires submitted by mine operators in 1984, 1985, and
1986. The surveys contained information regarding royalty payments and
exploration expenditures. Thirty-five percent of the mines surveyed by EPA
reported they pay royalties and 65 percent did not pay any royalty.
Furthermore, less than 10 percent of the mines surveyed incurred both royalty
costs and exploration expenditures greater than $5,000. Approximately
one-third of the mines did not incur royalty costs or exploration expenses.
Based on all of the available information, EPA believes royalty costs and
exploration expenditures are adequately accounted for in the 10 percent cost
contingency applied to all of the baseline model mines in EPA's analysis. EPA
survey data indicates that few mines incur both exploration and royalty costs,
and that some mines incur neither cost. Therefore, the 10 contingency applied
to all mines adequately accounts for these costs at a placer mining
operation. Additionally, EPA incorporates the 10 percent contingency cost
into the representative mines which reflect higher costs of operating under
site-specific conditions. This results in greater exploration/royalty
expenses for all mines in the analysis.
g. Equipment Leasing Costs
In some mining operations, the operator will lease rather than purchase
equipment. The miner will lease if he cannot raise the capital necessary to
purchase the equipment or if the equipment is only needed temporarily. The
information available to EPA indicates that few miners lease equipment.
h. Debt Service Cost
Debt service costs consist of the interest charges on the loans used by
miners to finance their operations. The baseline model mines assumed no debt
financing. Debt service cost has been incorporated into representative model
mines that have been developed to depict variations on the baseline conditions
(see Section P below).
IV-8
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i. Reclamation
The Agency contacted the Bureau of Land Management in Anchorage and
Fairbanks, Alaska, to obtain cost estimates for reclaiming placer gold mine
sites. Reclamation includes the costs to grade, shape and contour mined land
at placer mining sites. The Agency averaged three price estimates collected
from different sources to derive an annual reclamation cost of $380 per acre
and applied this cost to all mines.
j. Indirect Operating Cost Components
The indirect operating costs of a gold placer mining operation include the
following:
• Amortization of certain capitalized items including development and
preproduction expenses. A seven-year straight-line amortization rate
is used for the model mine analysis.
• Depreciation of plant and equipment items including bulldozers,
loaders, trucks, pumps, tanks, and other heavy equipment. The
depreciation method is assumed to be ten years, straight-line, for very
small and small open-cut mines and seven years, straight-line, for
medium and large open-cut mines. A ten percent salvage value on heavy
equipment was assumed for all open-cut mines.
D. Estimation of Gross Operating Revenues
As described in Section C, most gold placer mining operations produce new
gold in a wide range of sizes from dustlike particles in the 100-200 mesh
category to nuggets ranging from 10 mesh to over 1 ounce in size. Raw gold
from the representative model mines has been divided into nugget and smaller
fractions. Gross revenue of the mine consists of the purchase price for the
gold, less smelting fees, and a nugget sale credit.
Based on EPA research, the percentage of gold sold in nugget form for each
mine size class was as follows:
IV-9
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Percent of Gold
Mine Size Sold in Nugget Form
Very Small Open-cut 19
Small Open-cut 19
Medium Open-cut 15
Large Open-cut 5
Small Dredge 5
Nugget gold is sold directly to the public and commands a price between 0 and
23 percent higher than the price of gold bullion.
A sensitivity analysis was performed by assigning a 23 percent premium
above the price of gold for all recovered gold ore 14 mesh and larger. A
sensitivity analysis was then conducted by assigning a 23 percent premium to
only 25 percent of the gold 14 mesh and larger. The sensitivity results were
similiar enough to indicate that this component is not a major factor in
determining economic achievability.
Gold prices of $300, $377, and $455 per ounce were selected as the range
of prices used in analyzing economic impacts. The price of $377 per ounce was
selected because it represents the average annual gold price in the 1986
mining season, the last full mining year for which gold prices were
available. The price of $455 per ounce was selected because it represents the
average annual gold price in the 1987 mining season, the last year before this
rule is final.. The price of $300 per ounce was selected because it represents
the lowest average annual gold price since 1979. The impact results at $300
per ounce are presented in the economic section of the final public record.
E. Baseline Operating Cost Estimates
To facilitate the economic impact analysis, EPA developed baseline model
mines to depict the various sizes and types of mining operations. A basic set
of operating costs was developed for the models, then adjusted to reflect site
IV-10
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characteristics and other factors that affect operating expenses. These 'cost
factors" (e.g., extremes in topography or geography) are discussed in greater
detail below.
The major factor used to distinguish the baseline model mines was the
annual volume of material processed. For open-cut operations, four sizes were
selected to represent industry variations in processing volumes (Table IV-1).
For dredge operations, two sizes were selected. Operating costs for the
open-cut mines in each size were derived from a variety of data sources (see
Section IV B). Actual operating cost data were used for the dredge mines.
Detailed descriptions of the design of these operations are presented in
Chapter VI.
For this analysis, annual production is defined as the volume in yards of
bank-run ore that is processed through the plant in one operating season.
Annual production does not include volumes of material stripped or
stockpiled. Baseline operating cost estimates were developed by first
identifying the type of heavy equipment, including bulldozers, loaders, and
backhoes needed by the mine to process the required volume, and then
estimating the labor and machine hours necessary to operate and maintain the
equipment. Operating costs also cover the equipment and labor expense needed
for other activities at the site.
P. Cost Factors
Mining cost diversity due to site-specific conditions is accounted for by
the application of variable cost factors to the baseline mining costs. The
factors which could affect the price of one or more of the cost components
described in Section IV C include:
• Topography
• Logistics/transportation access
• Geologic factors
IV-11
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TABLE IV-1
SIZE OF BASELINE MODEL MINES
MINE TYPE
SIZE RANGE
(CUBIC YARDS)
PROCESSED ANNUALLY
Very Small Open-Cut
Small Open-Cut
Medium Open-Cut
Large Open-Cut
Small Dredge
18,000
35,000
150,000
340,000
216,000
IV-12
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• Engineering condition of ore
• Seasonal and climatic factors
• Ore stripping ratio
• Labor factor
• Water availability
• Capital availability
This section describes these factors and their importance. Chapter VI
describes the use of these factors in model mine analysis.
1. Topography
Topography differs among mining areas and from site to site within areas.
These differences can affect the operation, particularly waste disposal
practices and settling pond location and size. Steep slopes, high rainfall,
and a number of other topography-related factors can greatly affect facility
costs and operating performance.
2. Logistics/Transportation Access
Remote locations can greatly add to the cost of placer mining operations.
For each model in Alaska, logistics/transportation cost factors were developed
by identifying the mix of small and large airplanes, railroads, sea, and road
transport that would be used for transporting equipment and supplies to each
region.
3. Geology
Regional geology affects the grain size and constituent make-up of the
gravel handled and processed in a placer mine. Geological cost factors were
developed to account for gravel characteristics, clay or fine-sized particles,
boulders, and organics.
IV-13
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4. Engineering Condition of Ore
Pay gravels can be overlain by silty, organic-rich deposits of barren
frozen muck, barren alluvial gravels, broken slide rock, or glacial deposits.
All of these conditions may affect the cost of stripping the overburden.
Stripping the overburden can be constrained also by permafrost, difficulty in
working with weak thawing silts, or stripping of caliche.
5. Seasonal/Climatic Factors
There are a wide diversity of climatic and rainfall conditions in placer
mine locations. Some mines are located in regions close to the coast and as a
result have a milder climate and more abundant rainfall, which allows for a
longer mining season and greater availability of process water. Other mines
are located in interior areas including mountainous terrain with colder,
harsher climates and possibly reduced rainfall. These inland areas have
shorter mining seasons and may have to contend also with permafrost and a
shortage of water, all of which increase operating costs. Further, weather
conditions can lead to shutdowns and maintenance problems, also increasing
operating costs.
6. Ore Stripping Ratio
The amount of overburden that must be removed to access the ore (i.e., the
stripping ratio) is a critical cost component in the mining operation. Areas
with thick overburden have higher operating costs.
7. Labor
Mine labor costs are affected by whether the workers are unionized and by
the degree of skill required for each job. There is substantial variation in
these factors from region to region in Alaska and the lower 48 states, so
separate cost factors were developed for each mining area.
IV-14
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8. Water Availability
Water is used continuously in placer gold mining operations. Water washes
the gravel and helps to disintegrate gold-bearing clay materials through
high-pressure jet action. For a complete discussion of the role water plays
in the placer gold mining operation, see the Development Document.
9. capital Availability
A substantial capital investment is necessary to start and maintain a
placer gold mining operation. Capital is available through loans at
commercial banks, sales of stock to the public, individual investors, retained
earnings from previous years of operations, and other internal sources of
funds.
G. Representative Model Mines
It is not possible to model every type of placer gold mining operation
because each mine is a unique entity with its own site-specific
characteristics. For the baseline model mines, EPA incorporated the nine (9)
cost factors discussed above by constructing 'representative* model mines for
each of the very small, small, medium, and large open-cut mines in each of the
six regions of Alaska and the lower 48 states. The number of representative
mines constructed by type and region are shown in Table IV-2.
The representative mines for each region and size were established by
selecting the cost factors that could apply to actual mines in the field. The
costs for each representative mine were estimated in terms of dollars per
cubic yard of processed ore and then converted into dollars per fine ounce of
gold recovered. The costs of the representative mines were then averaged to
determine the average operating cost by mine type and region. In this way, a
systematic method of comparing mining costs for a variety of conditions for
the placer gold mining industry was developed.
IV-15
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TABLE IV-2
NUMBER AND TYPES OF REPRESENTATIVE MODEL MINES EVALUATED FOR ALASKA
REGION NUMBER
123 456
ALASKA
EASTERN SOUTH- SOUTH SOUTH-
MINE TYPE NORTHERN WESTERN INTERIOR WESTERN CENTRAL EASTERN
Very Small Open-cut 3 3 33 3 3
Small Open-cut 3 33 333
Medium Open-cut 3 33 333
Large Open -cut 3 33 333
Small Dredge 1 1
Large Dredge3 1
7
LOWER
48
3
3
3
3
aAs specific operating data were provided by two active large dredge operations,
baseline and representative model mines were not developed to represent these operations,
-------
All of the lower 48 placer gold-producing states are aggregated and
represented by Region 7. Chapter VII, Economic Impacts, analyzes by region
the lost gold production and revenue, mine closures, and employment effects
resulting from pollution control compliance costs.
H. Generation of Supply Curves
To generate a supply curve for the active placer gold mines, the operating
costs per fine ounce of gold of all the representative model mine types by
region were estimated and summed. The supply curves consist of a plot of the
average operating cost per fine ounce of gold for the representative regional
mine types as a function of total cumulative fine gold production. The
representative mine types within each region are averaged and a highest and
lowest cost mine per fine ounce is plotted. These supply curves represent the
variations in costs for each type of operation by region in Alaska and the
lower 48 states.
Hypothetical supply curves are depicted in Figures IV-1 and IV-2. The
following discussion explains how the supply curves are determined and
interpreted.
In Figure IV-1, the supply curve is represented by line HI. Point I on
the supply curve represents the lowest operating cost, and point H represents
the highest operating cost for a given mining type in region X. Line EF
represents the average cost of the representative mines applied to region X.
Point I is calculated based on the lowest operating cost of the representative
mines in terras of dollars per cubic yard of ore processed for this mine type
in Region X, and then converted to dollars per fine ounce based on the ore
grade assumption for the region. Point H is calculated by assuming that no
mine will operate if direct operating costs exceed the price of gold (point
B). From Point B, Point H is plotted by adding the indirect operating costs
per fine ounce to direct operating costs of the mine. For this example, the
supply curve bends at Point T so that the area of triangle HTF is set to equal
the area of triangle ITE. The areas of the triangles are equal so that the
IV-l 7
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FIGURE IV-1
EXAMPLE OF A SUPPLY CURVE FOR A GIVEN MINING TYPE
IN A GIVEN REGION
TOTAL OPERATING COST
(dollan/fihe ounce of fold)
Supply Cunt
Price of Cold
Avenge Total Cost
of Three Repmenutive
Minn in Repon X
1000 2000 3000
R D
4000 5000
CUMULATIVE PRODUCTION IN REGION X
(ounces of fine fold)
IV-18
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FIGURE IV-2
EXAMPLE OP THE EFFECT OF COMPLIANCE COSTS ON THE SUPPLY
CURVE PQR A GIVEN MINING TYPE IN A GIVEN REGION
TOTAL OPERATING COST
(dollars/fine ounce of gold)
Avenge Toul Cost
of Thret Reprncautivc
Mines in Region X
100-
1000
R D
5000
CUMULATIVE PRODUCTION IN REGION X
(ounces of fine gold)
IV-19
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average cost can be represented by line EF. Stated another way, the areas of
the triangles are equal because the cost for all mines in each triangle must,""
when averaged, equal the average cost of the representative mines. Appendix B
describes the equation. Line CL represents cumulative gold production of all
mines that can produce, gold at a cost less than or equal to M. The price of
gold is represented by line AB. Any mine operating with a cost exceeding the
price of gold before compliance costs is considered a baseline closure. In
this example, line RD represents the amount of gold production coming from
mines that have baseline operating costs exceeding their revenues.
Figure IV-2 is an illustration of how compliance costs will affect the
supply curve. Pollution control compliance costs will increase the overall
operating expenses at the mine. As a result, the supply curve will shift up;
this is represented by line PNQ (the post-regulatory supply curve). Lost gold
production as a result of pollution control compliance costs is represented by
line VR. The number of mines to close, according to this analysis, can be
calculated by taking total gold production lost as a result of the imposition
of pollution control compliance costs, and dividing it by the amount of gold
produced by each mine of a given type.
I. Decision to Operate
The analysis of a miner's decision to operate in a forthcoming season is
based on the economic principle that a facility's revenue must cover its
operating costs. The model mine cost analysis used in this study provides the
primary basis for determining closures. Some mines would be predicted to
close even without the regulation. These closures are estimated separately
and are not attributed to the guidelines.
The decision to operate cannot be made in isolation, and, therefore, a
projection of short-term economic loss does not prove conclusively that a
plant will close. Included in the miner's decision to operate are other
considerations including price expectations, closure and restart costs,
long-term financial goals, and tax loss advantages.
IV-20
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The placer mining industry is inherently speculative and unstable, and
entry and exit from the industry occurs frequently. This high turnover rate
is a reflection of the small profit margins of many operations. Higher gold
prices may attract high-cost operators into placer gold production for a given
season. Other placer operators work intermittently, depending upon their
ability to obtain working capital and to locate high value gold placer
deposits. Thus, the simplified closure analysis presented here can only
approximate real world conditions.
2064C
IV-21
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V. COST OF COMPLIANCE
The cost of wastewater treatment processes, required under the effluent
limitations for the placer gold mining industry, are presented in the
Development Document for this regulation. That document describes also
various characteristics of the industry including the type of mining, ore
processing, gold production, water usage, and sources and constituents of
wastewater. This information serves as the basis for establishing the
effluent limitations and the treatment systems selected by BPT, BAT, and NSPS
and their costs. This chapter provides a summary description of the
wastewater treatment processes, the recommended pollution control
technologies, and their associated costs.
A. Treatment Technology Options
EPA considered three wastewater treatment processes as the basis for
establishing the BPT, BCT, and BAT effluent guidelines. The wastewater
treatment processes studied were:
1. Simple settling;
2. Simple settling plus recycle; and
3. Simple settling and flocculant (polyelectrolyte)
addition for treatment of all water.
These processes were used to define six treatment options:
SIMPLE SSTTLING/BPT
Option 1 - Pour (4) hours primary settling. Pond is built once per season.
Option 2 - Primary settling with a four (4) hour detention time. Pond is
built three (3) or four (4) times per mining season, depending
upon mine model.
V-l
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RECYLE/BAT and NSPS
Option 3 - Primary settling with four (4) hours detention time followed by
100 percent recycle of process water. Pond is built once per
mining season.
Option 4 - Primary settling with four (4) hours detention time followed by
100 percent recycle of process water. Pond is built three (3) or
four (4) times per mining season, depending upon mine model.
CHEMICAL TREATMENT/ANOTHER OPTION FOR BAT AND NSPS
Option 6a - Option 1 plus chemical treatment of all water.
Option 6b - Option 2 plus chemical treatment of all water.
Currently, most placer mines have some type of settling pond in place in
order to comply with federal- and state-issued NPDES permits. Although mines
may have ponds in place, this analysis considers all costs of the treatment
options as being costs of compliance with this regulation since ponds must be
rebuilt every mining season.
B. Recycling Treatment in Place
Alaska gold placer mining operations are required to submit applications
for state-issued, tri-Agency permits. The Agency has received from the Alaska
Department of Environmental Conservation (ADEC) a summary of data from these
permit applications. Included in the information submitted by permit
applicants was whether they expected to practice recycling at their
operation. The data indicate that approximately 30 percent of the mines in
Alaska expected to recycle 100 percent of their water and another 30 percent
indicated they would operate under partial recycle conditions.
On the basis of this data, EPA concluded that some proportion of the mines
already have recycling equipment on-site, and therefore incur the costs of the
equipment as a baseline operating cost, as opposed to a cost of compliance.
V-2
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Because EPA has used a model mine analysis to represent the mines in the
industry, the Agency decided to incorporate this data by adjusting the total
recycling costs incurred at each of the baseline model mines. EPA recognizes
that, in fact, the extent of recycling costs incurred will vary depending upon
the' amount of equipment which exists at each site. However, EPA evaluated the
average effect which the treatment-in-place would have on compliance costs to
the industry as a whole.
It would have been extremely difficult for EPA to incorporate into its
analysis all the various partial recycling rates indicated by the permit
data. Mines conducting only partial recycle will still incur some compliance
costs, and those costs will vary from zero to the full recycling costs. EPA
assumed that 50 percent of the mines conducting partial recycle have no
recycling equipment onsite and, therefore, incur the full costs of recycling
in order to comply with this regulation and that 50 percent of the mines have
adequate equipment onsite and, therefore, do not incur any recycling costs.
EPA believes that these assumptions reasonably account for the range of
current practices in the industry as reflected in the tri-Agency permit data.
The economic impact analysis uses treatment-in-place information for
estimating economic impacts for all mine sizes.
The following equation was used to incorporate this data into the Agency's
estimation of baseline operating and compliance costs. The equation estimates
the average annualized compliance costs for all mines to recirculate water.
The result of this equation was then used as the cost of compliance for
determining economic impacts at the various model mine sizes.
.40 (Annualized Cost to Recycle) + .30 (Annual Settling Cost) +
.30 [(Annual Settling Cost) + .50 (Recycle Cost minus Settling Cost)]
This equation reflects the following considerations: based on permit
data, EPA assumes that forty (40) percent of the mines incur full costs to
recycle, which includes the cost of construction of settling-ponds. The
thirty (30) percent of mines that are currently recycling at 100 percent incur
V-3
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settling pond costs only. According to the state's data, the remaining thirty
(30) percent of mines perform partial recycle. Of those mines that are
conducting partial recycle, the rate of recycle ranges from five to
ninety-five percent.
The following example will illustate the use of this equation. A small
open cut mine processing 35,000 cubic yards per year with no treatment in
place is estimated to incur $20,800 in water recirculation compliance costs,
which includes the cost of settling ponds. Therefore, the equation would be
as follows:
.40 (20,800) + .30 (5,500) + .30 (5,500 + .50 [20,800 - 5,500]) = $13,900
where:
$20,800 = total cost to build settling ponds and full recycle
$5,500 « total cost to build settling ponds
$13,900 = annual recycle cost for a small mine with treatment in place
The economic impact analysis calculates this equation for all mine sizes
and uses this treatment-in-place information for estimating economic impacts.
The difference between no treatment in place and the average cost of treatment
in place for this example is $6,900. This cost is incurred by the mine and
therefore EPA has increased the baseline operating costs of the small open cut
representative model mines by this difference. This was done for all mine
sizes to reflect the fact that mines would incur these costs in the baseline.
C. Treatment Process Costs
EPA has estimated annual costs for wastewater treatment processes for very
small, small, medium, and large open-cut mines, small dredges and large
dredges based on flows of 875 gallons per minute (gpm), 1350 gpm, 2250 gpm,
2500 gpm, 2060 gpm, and 3150 gpm, respectively.
V-4
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These model flow rates are not to be perceived as absolute, but instead as
representative of a range of mine production levels. Actual onsite compliance
costs will vary based on the exact size of the mine in question.
Other critical assumptions in the analysis include:
• Very small open-cut sluices operate 60 days per year 8 hours per day.
• Small open-cut sluices operate 75 days per year 8 hours per day.
• Medium open-cut sluices operate 83 days per year 10 hours per day.
• Large open-cut sluices operate 85 days per year 20 hours per day.
• Pond sludges have a 50 percent concentration of solids.
• Compliance costs in Alaska were estimated to be 27 percent higher due
to higher fuel, labor, and transport costs.
Details of these and other assumptions are provided in the Development
Document.
Tables V-l and V-2 provide estimates of the compliance cost for individual
mines of various types and sizes in Alaska and the lower 48 states,
respectively. Table V-3 summarizes the compliance cost estimates for all
Alaska and lower 48 mines for each treatment option by type and size of mine.
Tables V-4 and V-5, respectively, show the impact of compliance cost on mine
operating costs for Alaska and the lower 48 states. These tables and the
economic impact analysis presented in Section VII focus on Options 2, 4, and 6.
2059C
V-5
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TABLE V-l
ANNUAL COST OP COMPLIANCE PER MINE BY SIZE - ALASKA
MINE TYPE
Very Small Open-cut
Small Open-cut
Medium Open-cut
Large Open-cut
Small Dredge
Large Dredge
SIMPLE
SETTLING
$5,700
5,500
6,400
8,800
34,720
94,390
RECYCLE3
$10,300
13,900
20,600
33,300
13,930
32,760
CHEMICAL
TREATMENT
$14,300
18,700
32,900
65,300
51,390
130,490
aAssumes that some recycle equipment is in place for open-cut
mines only.
V-6
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TABLE V-2
ANNUAL COST OP COMPLIANCE PER MINE BY SIZE - LOWER 48b
MINE TYPE
Very Small Open-cut
Small Open-cut
Medium Open-cut
Large Open-cut
Large Dredge
SIMPLE
SETTLING
$4,200
4,000
4,700
6,400
68,900
RECYCLEa
$7,500
10,200
15,000
24,300
23,900
CHEMICAL
TREATMENT
$10,400
13,700
24,000
47,700
95,250
aAssumes that some recycle equipment is in place for open-cut
mines only.
bFor mines located in the continental O.S., compliance costs
were estimated to be 27 percent less than Alaska mines due to lower
costs of fuel, labor, and transportation.
V-7
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TABLE V-3
TOTAL ANNUAL COMPLIANCE COSTS FOR ALL MINES
(DOLLARS PER YEAR)
MINE TYPE/SIZE
Small Dredge
Alaska
Large Dredge
Alaska
Totals:
Alaska
Lower 48
TECHNOLOGY OPTIONS
SIMPLE SETTING
RECYCLE3
35,000
94,000
1,245,000
1,101,000
14,000
33,000
2,773,000
2,526,000
CHEMICAL TREATMENT
Very Small Open-cut
Alaska
Lower 48
Small Open-cut
Alaska
Lower 48
Medium Open-cut
Alaska
Lower 43
Large Open-cut
Alaska
Lower 48
$ 450,000
491,000
391,000
472,000
205,000
132,000
70,000
6,000
$ 814,000
878,000
987,000
1,204,000
659,000
420,000
266,000
24,000
$1,130,000
1,217,000
1,328,000
1,617,000
1,053,000
672,000
522,000
48,000
51,000
130,000
4,214,000
3,554,000
aAssumes that some recycle equipment is in place as described in text
above.
Source: EPA estimates.
V-8
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TABLE V-4
PERCENT INCREASE IN OPERATING COSTS DUE TO COMPLIANCE - ALASKA
MINE TYPE
Very Small Open-cut
Small Open-cut
Medium Open-cut
Large Open-cut
Small Dredge
Large Dredge
MINE SIZE
(cu yd/yr)
18,000
35,000
150,000
340,000
216,000
800,000
SIMPLE
SETTLING
5.3%
2.8
1.0
1.0
3.1
2.6
RECYCLEa
9.5%
7.0
2.7
2.2
1.3
1.0
CHEMICAL
TREATMENT
13.0%
9.4
4.3
4.2
4.6
3.6
aAssumes that recycle equipment is in place for open-cut mines
only
V-9
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TABLE V-5
PERCENT INCREASE IN OPERATING COSTS DUE TO COMPLIANCE - LOWER 48
MINE TYPE
Very Small Open-cut
Small Open-cut
Medium Open-cut
Large Open-cut
MINE SIZE
(cu yd/yr)
18,000
35,000
150,000
340,000
SIMPLE
SETTLING
5.4%
2.9
1.0
1.0
CHEMICAL
RECYCLE3 TREATMENT
9.7% 13.6%
7.5 10.1
2.6 4.2
2.3 4.4
aAssumes that some recycle equipment is in place for open-cut
mines only.
V-10
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VI. REPRESENTATIVE MODEL PROFILES
A. introduction
Placer gold mines in the United States operate under an extremely broad
range of conditions. Mine size varies dramatically from very small, highly
seasonal single unit operations to large, integrated multi-unit dredging and
open-cut operations. Due to the fluctuating price of gold, production at some
mines is intermittent, and all mines may not operate every season.
Although many placer mining operations may appear to be similar, the very
broad array of site conditions poses limitations and challenges to the
operator. The EPA proposal did not focus on these conditions, and the
generalized models did not reflect costs involved with mining under different
operating environments other than those imposed by size.
The studies undertaken to support this final regulation are more
comprehensive and, therefore, better reflect actual operating conditions and
costs at placer gold mines. Baseline costs for very small, small, medium, and
large open-cut mines were developed based on EPA modelling. Actual cost data
from corporate filings such as 10-K reports, annual reports, and filings with
EPA were used for large dredges. Costs for small dredges were derived from a
combination of corporate data and EPA modelling.
B. Baseline Mine Assumptions
1. Model Categories by Mining Method
Model mines were first segregated by mining method. All methods examined
are surface mining methods. No underground raining methods were studied
because of their low production levels and the absence of credible data
describing these mines.
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a. Dredging
Dredges are custom-designed mining and processing units that result in
high levels of labor efficiency. Each dredge has unique operational
characteristics and production capabilities. Operations with two different
production volumes were used to address dredges.
Large Dredges
Major dredging units require very large reserve bases and have capital
requirements generally in excess of $5 million. Operators of such units are
usually major corporations with large technical operating staffs. Due to the
availability of published data and unpublished submittals, corporate costs
data serves as the basis for the dredge analysis. In the case of 10-K reports
and annual reports, cost data were used directly. In the case of submittals
of information to EPA, budget plan information was verified to the extent
possible from sources outside the corporation, and cost estimates were then
compiled for the operation. A detailed description of the large dredge is
contained in Section 14 of the final public record.
Small Dredges
Small dredging units may process as much volume as a medium to large
open-cut placer mine but are much less labor-intensive and generally operate
under tighter operating constraints. These mines typically process
lower-grade ores. Currently, small dredges are found principally in Alaska.
Because several very small dredges are family-owned and -operated, published
information on operating costs is not available. In the 1920s, dozens of
these units operated in the U.S.; the few that remain are operating in
reserves that were discovered many years ago. EPA has not received any
operator survey information for small dredges, and the data-available for cost
estimation are extremely limited. Only one sale of a small unit has been made
in recent years by a public company, so estimation of capital costs for a used
dredge in good condition was not possible. Costs for new dredges would be
prohibitive under most scenarios.
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The best source of data on small dredges was Queenstake Resources, Ltd.,
operator of a small dredge near Dawson, Yukon, Canada. Published cost data
for this dredge from professional papers, corporate annual and quarterly
reports, and industry publications were used extensively to construct a
baseline cost estimate for a small dredge operation. The ore grade values
assigned to small dredges are .008 in Region 2 and .015 in Region 4 of
Alaska. A baseline operating cost of $3.22 per cubic yard was derived for the
small dredge model mine. Sufficient data are not available to break the
expenses down into direct and indirect costs.
A summary of baseline mining conditions for small dredging include:
Operator: A small company
Annual Prod: Approximately 216,000 cubic yards
Bucket Capacity: 3.5 cubic feet
Depth Mined: 20-25 feet
Pretreatment: 2-4 feet overburden stripped in advance, solar
thawing
Nature of Material: 2-4 feet loss overburdge, 18-20 feet of gravel
and clay in pay zone
The small dredge digs shallow reserves and utilizes advance stripping and
solar thaw in permafrost conditions in a river valley.
In the past, many operators had multi-unit operations, wherein low grade
ores in one area might be offset by high grade ores in other areas. The
extreme uncertainty and fluctuations in ore grades place an operator of a
single unit in a highly vulnerable economic position if adequate financial
reserves are not available to offset short-term losses. Although we recognize
this situation, the absence of more specific operating data made it impossible
to build such uncertainties into the model. These uncertainties pertain to
all placer mines, but dredges and hydraulic operators are the most vulnerable
because they lack the operational flexibility that is available to many
open-cut operators. The dredge must mine what is directly ahead of it and
dredge around or through low-grade areas rather than reopen a pit in
better-grade reserves that may lie ahead.
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b. Open-Cut Mines
Open-cut mines are surface placer deposits mined through the use of
tracked and rubber-tired earthmoving equipment. Pay gravel is processed
through conventional washing plants. The equipment is diesel powered or
diesel/electric. The following sections describe the parameters of the
open-cut models.
Large Open-cut Mine
The baseline model case for this category is a remote location in the
lower 48 states served by heavy duty roads. The mining method is open-cut
processing with a mine life of seven years. The stripping ratio for this
model is assumed to be 1:1 and the mine progresses up an alluvial valley with
an average gradient of 1.5 percent. The total disturbance will exceed the
width of the ore body and trail behind the working face. Advance stripping is
planned one season ahead of mining. Conditions are seasonal and operating
room is unconfined. Areas of surface disturbance are reclaimed on an annual
basis. Pay gravel dimensions for one season are 600 feet wide by 1,275 feet
long by 12 feet deep. Overburden is composed of 12 feet of barren gravel.
Production is based on 85 operating days per season, 10 hours per day. Water
usage is 2,500 gallons per minute and is obtained by pumping from a fresh
water source located approximately 1,000 feet away from the recovery plant.
No ponds are installed but an area 210 feet wide is left unfilled for the
length of the annual advance. This area may be utilized for ponds.
Key cost parameters include the assumption that no property expenses are
incurred. Amortization includes development and pre-production expenses and
is taken over 10 years. Depreciation is straight line over 10 years and
includes a 10 percent salvage value. Details on the operating requirements in
terms of labor and energy for this model are listed in Table 1 of Appendix A.
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Medium Open-Cut Mines
The baseline model case for this category is a remote location in the
lower 48 states served by heavy duty roads. The mining method is open-cut
processing with a mine life of seven years. The stripping ratios for this
model is assumed to be 1:1 and the mine progresses up an alluvial valley with
an average gradient of 2.0 percent. The total disturbance will exceed the
width of the ore body and trail behind the working face. Advance stripping is
planned one season ahead of mining. Conditions are seasonal and operating
room is unconfined. Areas of surface distrubance are reclaimed oh an annual
basis. Pay gravel dimensions for one season are 300 feet wide by 1,350 feet
long by 10 feet thick. Overburden is composed of 10 feet of barren gravel.
Production is based on 83 plant operating days per season, 10 hours per day.
Water usage is 2,250 gallons per minute and obtained by pumping from a fresh
water source located approximately 650 feet away from the recovery plant. No
ponds are installed but an area 145 feet wide is left unfilled for the length
of the annual advance. This area may be utilized for ponds.
Key economic parameters include the assumption that there are no property
costs. Amortization includes development and pre-production expenses and is
taken over 10 percent years. Depreciation is straight line over 10 years with
a 10 percent salvage value. Details on the operating requirements for this
model are listed in Table 2 of Appendix A.
Small Open-Cut Mine
The baseline model case for this category is a remote location in the
lower 48 states. The mining method is open-cut processing with a mine life of
seven years. The stripping ratio for this model is assumed to be 1:1 and the
mine progresses up an alluvial valley with an average of the- ore body gradient
of 2.0 percent. The total disturbance exceeds the width and trails behind the
working face. Advance shipping is planned one season ahead of mining.
Conditions are seasonal and operating room is unconfined. Areas of surface
disturbance are reclaimed on an annual basis. Pay gravel dimensions for one
season are 175 feet wide by 720 feet long by 7.5 feet deep. Overburden is
composed of 7.5 feet of barren gravel. Production is based on 75 plant
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operating days pec season, 8 hours per day. Water usage is 1,350 gallons per
minute and is obtained by pumping from a fresh water source located
approximately 275 feet from the recovery plant. No ponds are constructed but
an unfilled area 65 feet wide along the length of the annual advance is
available for paved construction.
Key economic parameters include the assumption that there are no property
costs. Depreciation is straight line over 10 years and a 10 percent salvage
value. Amortization is over 10 years and includes development and
pre-production expenses. Details on the operating requirements for this model
are listed in Table 3 of Appendix A.
Very Small Open-Cut Mine
The baseline model for this category is a remote location in the lower 48
states served by heavy duty roads. The mining method is open-cut processing
with a mine life of five years. The stripping ratio is 0.6:1 and the mine
progresses up an alluvial valley with an average gradient of 2.0 percent. The
total disturbance exceeds the width of the ore body and trails behind the
working face. Advance stripping is planned ahead of mining. Conditions are
seasonal and operating room is unconfined. Areas of surface disturbance are
reclaimed on an annual basis. Pay gravel dimensions for one season are 150
feet wide by 650 feet long by 5 feet deep. Overburden is composed of 3 feet
of barren gravel. Production is based on 60 plant operating days per season,
8 hours per day. Water usage is 870 gallons per minute and is obtained by
pumping from a fresh water source located approximately 250 feet from the
recovery plant. No ponds are installed but an area 35 feet wide is left
unfilled for the length of the annual advance. This may be used for ponds.
Key economic parameters include the assumption that there are no property
costs. Depreciation is straight line over 10 years. A 10 percent salvage
value has been included. Amortization is over 10 years and includes
development and pre-production expenses. Details on the operating
requirements of this model are listed in Table 4 of Appendix A.
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C. Representative Model Mine Cost Variations
The Agency could not model every type of gold placer mining operation
since each mine is a unique entity with its own site-specific
characteristics. To reflect variable site conditions such as transportation,
weather, topography, geology, geography, etc., the Agency derived numerical
cost factors to modify or adjust baseline cost estimates to account for
conditions in six regions in Alaska and in the lower 48 states. Forty
individual cost variances were calculated to reflect the nine cost factors
such as location, climate, geology, etc.
By applying the cost factors, three representative model mines for each
mine size in each region of Alaska and the lower 48 states were developed to
arrive at a large number of possible mining cost outcomes (see Chapter IV,
Methodology). Generalized assumptions concerning the cost factors are
summarized below.
1. Baseline Mining Cost Adjustments
a. Topography
Mine topography can be a very significant cost factor and reflects the
degree of operational confinement experienced by the operator. The baseline
model mines were assumed to be unconfined. However, confined conditions
experienced by operators in alluvial valleys along sinuous streams and creeks,
result in higher costs due to longer length of tailings haul, reduced tailings
storage, and longer return pumping costs. A cost adjustment factor was
estimated to account for these additional expenses.
b. Logistics
The cost of supplies delivery was developed for all active mining
districts in Alaska and the lower 48 states. Data were obtained from
suppliers of all modes of transportation. The following assumptions were
used.
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1. All locations in the lower 48 states are considered accessible by
either seasonal or all-weather roads.
2. For Alaska, the costs include barge or ship transport to .the nearest
major seaport and include costs for winter access.
3. Costs for sites requiring several transport modes and transfer points
were estimated conservatively, assuming the greatest number of
freight transfers that might be required.
4. 'Large Air* costs were obtained for those districts with runways
listed on the FAA sectional maps as being 4,000 feet or greater in
length and where reliable air freight carriers have previous
experience landing freight.
5. 'Heavy-Duty Road" includes both paved and gravel roads that may be
closed or limited in axle weight during certain times of the year.
This includes the pipeline haul road from Fairbanks north.
6. In many districts some types of transport are not available or are
not a major factor in the region. We recognize that many miners may
use "small air" during the season for convenience in transporting
food items and emergency spares and for general access purposes,
however, seasonal freight is assumed to be moved by the most
economical means available.
In Alaska, logistics are a major cost element and a major barrier to
successful placer mine operation in many districts. Therefore, detailed
logistics information was developed for 37 active mining districts.
c. Access Restrictions
Many mines in remote areas are inaccessible during part or all of the year
by ordinary means of transportation. In the lower 48 states, the mine is
likely to be inaccessible in the winter due to winter road closures and snow
conditions. In Alaska, winter may offer limited overland access when the
ground is frozen and the weather is good. In summer, due to boggy and swampy
conditions and lack of roads, mines may be accessible only by small air.
Costs have been calculated for access to remote mines based on "small
air." For the winter, monthly or bimonthly overflights have been costed for
security purposes because the availability of snow machines has increased
winter vandalism. For the summer, weekly or biweekly small air service has
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been costed foe delivery of food and minor supplies. Even when a remote site
has trail access, it is often more efficient and cost-effective to use small
air due to the distances and time involved.
d. Geologic and Lithologic Considerations
Gold-bearing gravel typically consists of a wide range of grain sizes from
clay and silt to large boulders. The ideal material is well-sorted gravel
with a low fine-sized particle content and a low concentration of boulders.
Most previously explored auriferous gravel of this kind has been mined out.
Of the deposits remaining, geologic problems of excessive clay and silt
content, high concentrations of boulders, or organic detritus in the ore can
result in increased cost due to the time and equipment required to segregate
the undesirable materials.
Geologic conditions may increase the cost and complexity of the processing
facility required to maintain gold recovery. If additional cleanups must be
made, then plant throughput is lost. If the mining unit must segregate
boulders, then mining time and yardage will be lost. All of these sources of
potential cost increases were considered in developing cost factors for the
model mines.
e. Engineering Conditions of Ore
In addition to adverse geological conditions, the gravel may be more
difficult to handle due to its physical condition. In Alaska, permanently
frozen ground (permafrost) presents extensive problems, including the need for
advance stripping, cold water or solar thawing, drilling and blasting of ice
lenses, and ripping and dozing of frozen muck overburden.
When gravel is frozen, the ice in the spaces between rock particles
expands to take up more space than water or air and, thus, when permafrost
thaws, water is produced and shrinkage of pay gravel of from less then 1 to
over 15 percent can occur. Less ore in the same volume means higher unit
cost. Lenses or wedges of ice may be encountered in permafrost. If ice
lenses are in the frozen muck overburden, they must be drilled, blasted, and
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pushed aside; or, if feasible, the mining face must be diverted around them.
Mining around the ice lenses will result in lower extraction ratios, increased
selectivity, and higher costs. If the ice lenses are in the ore, then pay
gravel will be displaced, resulting in less recovered gold for the same mining
cost (i.e., higher unit cost).
ANFO (Ammonium Nitrate and Fuel Oil) and dynamite are used for blasting.
ANFO's unit cost is about 10 percent of that of dynamite, but it must be used
only under dry conditions. The logistics cost of bringing the components of
ANFU to a remote site may also favor dynamite.
If there are adverse weather conditions where advance stripping and solar
thawing are necessary, the total cost of the mining operation will increase
rapidly and an entire seasons's production may be lost. A short season due to
early or late frost may result in a small amount of advance stripping and less
pay gravel available for mining and processing.
Cemented ores are common in tertiary channel deposits of California and
other lower 48 western states. Cement is commonly calcite, zeolites, and/or
iron and manganese oxides. The effect of cement is to consolidate the gravel
into a rock that behaves much like concrete and requires ripping, blasting,
and/or crushing. For very deeply buried deposits, compaction and clay
cementation may slow dredge digging rates and necessitate blasting.
All of the above sources of potential cost increases were considered in
developing the cost factors for the model mines.
f. Seasonal and Climatic Factors
Extreme cold weather resulting in a shortened mining season increases
mining costs. Larger mining equipment must be used to mine the same volume in
a shorter time period, or multiple shifts are needed to achieve production
goals. The latter results in increased cost for camp and labor.
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Adverse conditions include very heavy rain, persistent fog, dust storms,
and wind. Any of these weather conditions may result in work stoppages and
decreased production which will cause a rise in unit cost. Rain and fog are
common in coastal areas. Rain and wind are common to mountainous areas, and
the wind and dust storms to desert areas. All of the above sources of cost
increases were considered in developing the cost factors for the model mines.
g. Stripping Ratios
The thickness and volume of overburden covering pay gravel can vary from
zero, where stripping may have been completed by a previous operator in past
years, to significant thicknesses, resulting in stripping ratios as high as
20:1. Most placer open-cut mines have stripping ratios between 1:1 and 4:1
and variance calculations were developed to account for these cases.
Hydraulic mines generally have thicker overburden. The average strip ratio
reported to EPA on mining questionnaires was 4.5:1 for hydraulic mines.
h. Labor
Labor costs include not only hourly wage costs for laborers but also
managerial and support costs such as salaries for engineers and hourly wages
for camp cooks, secretary/bookkeepers, and others. For the models, a labor
cost of $11.50 per hour for equipment operator and $9.00 per hour for other
labor was used, averaging out to $10.75 per hour. These costs are based on
data from the state of Nevada.
An unskilled labor force is characteristic of a start-up situation where
many job categories use local labor in the process of learning required job
skills. In this case, the variance is based on achieving only 80 percent of
annual production yardage at the same operating cost as full production (i.e.,
the variance takes into account the decreased efficiency of mines using
unskilled labor).
The labor cost for Alaska represents the mean hourly labor cost reported
by the State of Alaska Department of Labor for each region in the state for
the job descriptions of secretary, accountant, civil engineer, surveyor, heavy
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equipment operator, heavy equipment mechanic, cook, and laborer. Labor
differential costs between any region in Alaska and the 'lower 48* baseline
rate on an hourly union basis have been applied to all representative mines
for Alaska by size and region except where noted. For both Alaska and the
lower 48, management costs are calculated based on annual wages for mine
managers, mining engineers, and general managers in the respective regions.
i. Water Supply
Water supply is critical to placer mining operations. Excess water may
cause flooding and necessitate pit dewatering, culverts under roadways, creek
diversion and dike building, all of which increase mining costs. Limited
water supply entails construction of reservoirs, more water recirculations,
and additional pond and pumping capacity, all of which likewise increase
mining cost. Further, water supply shortfalls can cause shutdown and lost
production. If the mine continues to operate with low water volumes, high
pump maintenance, frequent shutdowns to clear debris from pump intakes, and
poor gold recovery due to inadequate washing and impeded settling will
increase costs dramatically. All of these potential sources of cost increases
were used to develop cost factors for the model mines.
j. Capital Availability
Capital may be obtained through personal savings of company principals,
retained earnings, investment funds from individual investors, investment
funds from limited partners, stock offerings, and a variety of other sources.
Two costs of capital of 5 or 13 percent were selectively applied to
representative model mine operations.
D. Representative Model Mines by Region and Production Rate
The following section describes the application of the variance cost
factors to the representative model mines. Three representative model mines
were designed for each mine size in each region of Alaska and the lower 48
states. A detailed description of the calculations is located in Section 14
of the final public record.
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1. Open Cut Mines
Alaska
Small and Very Small Open-Cut Mines; Region 1; Alaska-Northern
Three representative small mine models were costed for northern Alaska.
Small and very small mines were distinguished only in that very small mines
were not assigned a labor variance factor. The very small mines in this and
other regions, therefore, differ slightly in total cost from the small mine
size category.
Representative Mine 1 represents a moderate cost operation. Modifications
from the baseline include factors for permafrost and average logistics.
Average logistics represent the average of all variance cost factors for each
mode of transportation for a particular region. Total mining cost is $6.94
per cubic yard for the small mine and $6.71 for the very small mine.
Representative Mine 2 is adjusted for extreme cold, low road logistics,
permafrost, and frozen muck and ground. Total mining cost is $6.38 per cubic
yard for the small mine and $6.88 per cubic yard for the very small mine.
Representative Mine 3 is adjusted for confined conditions, high road
logistics, year round access restrictions, geologic considerations,
permafrost, extreme cold, and a bank loan. Total mining cost is $9.06 per
cubic yard and $8.36 for the very small open cut mine.
Medium Open-Cut Mine; Region 1; Alaska-Northern
Three representative medium-sized mine models were costed for northern
Alaska.
Representative Mine 1 is adjusted to reflect average logistics,
permafrost, and frozen muck cover and ground. Total mining cost is $6.18 per
cubic yard.
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Representative Mine 2 represents permafrost conditions, adverse season and
climatic conditions, and less stripping. Total mining cost is $5.30 per cubic
yard.
Representative Mine 3 reflects confined topography, high road logistics,
winter access restrictions, geologic boulders, permafrost, short mining
season, and a greater stripping ratio. Total mining cost is $7.92 per cubic
yard.
Large Open-Cut Mine; Region 1; Alaska-Northern
Three representative large model mines were costed for northern Alaska.
Representative Mine 1 was indicative of a moderate-cost operation.
Modifications from baseline cost include low-cost road logistics, winter
access restrictions, greater than 10 percent boulders in the pay gravel,
permafrost conditions throughout the reserves, seasonal factors resulting in a
short mining season, less stripping than baseline, and limited water
supplies. Total mining cost is $5.64 per cubic yard.
Representative Mine 2 represents baseline conditions adjusted to reflect
average logistics and permafrost. Total mining cost is $5.53 per cubic yard.
Representative Mine 3 simulates a high-cost environment. Adjustments to
baseline mining cost result from confined conditions, low-cost large air
logistics, year-round access restrictions, organic lenses in ore, permafrost
conditions throughout the reserves, and seasonal factors resulting in a short
mining season. Total mining cost is $7.81 per cubic yard.
Very Small and Small Open-Cut Mines; Region 2; Alaska-Western
Three representative mine models were costed for very small and small
open-cut mines in western Alaska. Representative Mine 1 is modeled to depict
moderate-cost conditions. Cost modifications from baseline include low-cost
road logistics, winter access restrictions, clay lenses in the pay gravel,
adverse seasonal weather conditions, and no overburden stripping. Total
mining costs are $5.98 per cubic yard for the small mine and $6.71 per cubic
yard for the very small mine.
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Representative Mine 2 is adjusted to reflect non-union labor and average
logistics. Total mining cost is $5.94 per cubic yard for the small mine and
$6.66 per cubic yard for the very small mine.
Representative Mine 3 reflects a high-cost scenario. Cost increases are
attributable to confined conditions, high-cost small air logistics, year-round
access restrictions, excessive fines in the pay gravel, permafrost conditions
throughout the reserves, and non-union labor. Total mining costs are $8.82
per cubic yard for the small mine and $8.64 per cubic yard for the very small
mine.
Medium Open-Cut Mine; Region 2; Alaska-Western
Representative model mines were costed for three medium-sized operations
in western Alaska. Representative Mine 1 is a moderate-cost case which
assumes topographic confinement, low-cost large air logistics, year-round
access restrictions, no advance stripping, strip ratios of less than 1:1, and
adverse weather conditions. Total mining cost is $5.61 per cubic yard.
Model Mine 2 represents average logistical cost conditions for Alaska.
Total mining cost is $4.73 per cubic yard.
Representative Mine 3 is a high-cost operation. Modifications to the
baseline include additional costs due to confined conditions, high-cost sea
logistics, clay lenses in the pay gravel, permafrost conditions throughout the
reserves, a short mining season, excess water handling and the capital cost of
a stock issue. Total mining cost is $6.90 per cubic yard.
Large Open-Cut Mine; Region 2; Alaska-Western
Three representative large open-cut mine models were developed for western
Alaska. Representative Mine 1 reflects a low-cost operation. Changes in cost
from baseline include low-cost sea logistics, winter access restrictions, no
advance stripping, a short mining season, stripping rations of less than 1:1,
and the capital cost of a stock issue. Total mining cost is $4.56 per cubic
yard.
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Model Mine 2 represents average logistical factors for Alaska. Total
mining cost is $4.93 per cubic yard.
Representative Mine 3 is a high-cost operation. Modifications in baseline
mining costs include confined conditions, low-cost large air logistics,
year-round access restrictions, clay lenses in pay gravel, permafrost
conditions in pay gravel and overburden, adverse weather conditions, stripping
ratios of 1:1 to 3:1, unskilled labor force and the capital cost of a stock
issue. Total mining cost is $7.38 per cubic yard.
Very Small and Small Open-Cut Mines; Region 3: Alaska-East Interior
Three representative very small and small open-cut mines were developed
for east interior Alaska. Representative Mine 1 is a low-cost operation.
Cost modifications from baseline are attributable to low-cost road logistics,
skilled labor, and stripping ratios of less than 1:1. Total mining cost is
$5.05 per cubic yard for the small mine and $5.10 for the very small mine.
Model Mine 2 represents average logistical conditions for Alaska. Total
mining cost is $4.57 per cubic yard for the small mine and $4.56 for the very
small mine.
Representative Mine 3 is a high-cost case. Costs in addition to baseline
are attributable to confined conditions, high-cost road logistics, access
restrictions in winter, adverse weather conditions, no overburden stripping,
and skilled labor. Total raining cost is $6.90 per cubic yard for the small
mine and $7.51 for the very small mine.
Medium Open-Cut Mine; Region 3; Alaska-East Interior
Three representative model mines were developed for east interior Alaska.
Model Mine 1 represents a low-cost operation. Modifications to baseline
mining cost are attributable to low-cost road logistics, greater than 10
percent boulders in the pay gravel, and no advance stripping. Total mining
cost is $4.25 per cubic yard.
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Model Mine 2 represents average logistical conditions in Alaska. Total
mining cost is $4.25 per cubic yard.
Representative Mine 3 is a high-cost model. Topographic confinement,
high-cost road logistics, winter access restrictions, greater than 10 percent
boulders in the pay gravel, permafrost conditions in the pay gravel and
overburden, adverse seasonal weather conditions, stripping ratios less than
1:1, excess water handling, and the capital costs of a stock issue result in a
total mining cost of $6.70 per cubic yard.
Large Open-Cut Mine; Region 3; Alaska-East Interior
Three model mines representative of conditions in east interior Alaska
were costed. Representative Mine 1 is indicative of a low-cost operation.
Modifications to baseline mining cost include low-cost road logistics, less
than 1:1 stripping ratio and no advance stripping. Total mining cost is $3.57
per cubic yard.
Model Mine 2 represents average logistical conditions for Alaska. Total
mining cost is $3.94 per cubic yard.
Representative Mine 3 reflects a moderate-cost scenario. Topographic
confinement, high-cost road logistics, winter access restrictions, greater
than 10 percent boulders in the pay gravel, permafrost conditions throughout
the reserves, adverse weather conditions, and capital availability by stock
issue result in a total mining cost of $5.95 per cubic yard.
Very Small and Small Open-Cut Mines; Region 4; Alaska-Southwest
Three cases were developed to obtain representative mining costs for small
and very small open-cut mines in southwestern Alaska. Representative Mine 1
is indicative of a low-cost operation with optimal conditions. Modifications
to baseline mining costs include low-cost sea logistics, access restrictions
during the mining season, and no overburden stripping other than removal of
soil and vegetation. Total mining cost is $5.25 per cubic yard for the small
mine and $6.35 per cubic yard for the very small mine.
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Model Mine 2 respresents average logistical conditions in Alaska. Total
mining cost is $6.18 per cubic yard for the small mine and $5.41 for the very
small mine.
Representative Mine 3 reflects a moderate-cost operation. Cost factors
included in this model are confined conditions, low-cost large air logistics,
year-round access restrictions, lenses of fine sand and silt particles in the
gravel, and stripping ratios of less than 1:1 resulting in a total mining cost
of $6.69 per cubic yard for the small mine and $7.29 for the very small mine.
Medium Open-Cut Mine; Region 4; Alaska-Southwest
Representative medium-sized mines were costed for three cases.
Representative Mine 1 is a low-cost operation. Topographic confinement,
low-cost sea logistics, and no overburden stripping result in a total mining
cost of $4.42 per cubic yard.
Model Mine 2 represents average logistical conditions in Alaska. Total
mining cost is $4.66 per cubic yard.
Representative Mine 3 is indicative of less optimal mining conditions.
Confined conditions, low-cost large air logistics, year-round access
restrictions, clay lenses in pay gravel, permafrost conditions in overburden
and pay gravel, adverse weather conditions, stripping ratios of less than 1:1,
and excess water handling result in a total mining cost of $6.39 per cubic
yard.
Large Open-Cut Mine; Region 4; Alaska-Southwest
Three cases were costed to represent large open-cut mines in southwestern
Alaska. Model Mine 1 is a low-cost case based on low-cost sea access,
seasonal access restrictions, clay lenses in pay gravel, no advance stripping
as the ratio is less than 1:1, adverse weather conditions, excess water
handling, and capital available through issue of stock. Total mining cost is
$4.37 per cubic yard.
VI-18
-------
Model Mine 2 represents average logistics for Alaska. Total mining cost
is $4.68 per cubic yard.
Representative Mine 3 is a high-cost operation. Topographic confinement,
low-cost large air logistics, year-round access restrictions, organic lenses
in pay gravel, permafrost conditions in overburden and pay gravel, adverse
weather conditions/and stripping ratios of 1:1 to 3:1 result in a total mining
cost of $6.76 per cubic yard.
Very Small and Small Open-Cut Mines; Region 5; Alaska-South Central
Model Mine costs were developed for three very small and small open-cut
mines in south central Alaska. Representative Mine 1 is a low-cost case with
optimal conditions. Low-cost road logistics and no overburden stripping
result in a total mining cost of $4.57 per cubic yard for the small mine and
$5.28 for the very small mine.
Model Mine 2 represents average logistical conditions for Alaska. Total
mining cost is $5.29 per cubic yard for the small mine and $5.01 for the very
small mine.
Representative Mine 3 is a moderate-cost mine with advantageous logistics
such as location near a railhead on the Alaska Railroad. Other cost factors
include confined conditions, off-season access restrictions, greater than 10
percent boulders in the pay gravel, and less stripping than in the baseline
mine case. Total cost for Mine 3 is $5.53 per cubic yard for the small mine
and $6.04 for the very small mine.
Medium Open-Cut Mine; Region 5; Alaska-south Central
Model mine costs were developed for three medium open-cut mines in south
central Alaska. Representative Mine 1 is a low-cost operation. Low-cost
small air logistics, year-round access restrictions, and lack of overburden
stripping result in a total mining cost of $4.01 per cubic yard. Model Mine 2
represents average labor and logistics for Alaska. Total mining cost is $4.35
per cubic yard.
VI-19
-------
Model Mine 3 is a moderate-cost scenario reflecting confined conditions,
low-cost large air access, restricted overland access year round, greater than
10 percent boulders in the pay gravel, no advanced stripping and limited water
supplies. Total mining cost is $5.20 per cubic yard.
Large Open-Cut Mine; Region 5; Alaska-South Central
Three representative cases were developed to represent large open-cut
mines in south central Alaska. Model Mine 1 represents a low-cost operation.
Modifications from baseline mining cost include low-cost road logistics, no
advance stripping and a stripping ratio of less than 1:1. The total mining
cost is $3.91 per cubic yard.
Model Mine 2 represents average logistical conditions in Alaska. Total
mining cost is $4.09 per cubic yard.
Representative Mine 3 is based on a moderate-cost operation. Topographic
confinement, low-cost large air logistics, year-round access restricitons,
clay lenses in pay gravel, adverse weather conditions, excess water handling,
and capital availability by issue of stock result in a total mining cost of
$5.33 per cubic yard.
Very Small and Small Open-Cut Mines; Region 6; Alaska-Southeast
Three model mines were costed to represent very small and small open-cut
mines in southeast Alaska. Representative Mine 1 is a moderate-cost
scenario. Baseline conditions combined with no overburden stripping result in
a mining cost of $5.37 per cubic yard for the small mine and $6.36 per cubic
yard for the very small mine.
Representative Mine 2 represents average logistics. Total mining cost is
$5.37 per cubic yard for the small mine and $5.95 per cubic yard for the very
small mine.
VI-20
-------
Representative Mine 3 is a moderate-cost operation. Costs attributable to
confined conditions, low-cost sea logistics, and no overburden stripping
result in a total mining cost of $5.65 per cubic yard for the small mine and
$6.17 per cubic yard for the very small mine.
Medium Open-Cut Mine; Region 6; Alaska-Southeast
Three mine models representative of medium-sized mines in southeast Alaska
were costed. Representative Mine 1 reflects a low-cost operation.
Modifications to baseline costs include topographic confinement, high-cost sea
logistics, winter access restrictions, and no overburden stripping. Total
mining cost is $5.13 per cubic yard.
Model Mine 2 represents average logistics. Total mining cost is $4.35 per
cubic yard.
Representative Mine 3 is a moderate-cost scenario. Cost factors included
are confined conditions, high-cost sea logistics, year-round access
restrictions, greater than 10 percent boulders in the pay gravel, cemented pay
zones, adverse weather conditions, and capital costs of a stock issue. Total
mining cost is $6.32 per cubic yard.
Large Open-Cut Mine; Region 6; Alaska-Southeast
Three model mines representative of large open-cut mines in southeast
Alaska were costed. Representative Mine 1 is a low-cost operation.
Modification to baseline mining costs are the result of topographic
confinement, high-cost sea logistics, winter access restrictions, no advance
stripping, stripping ratios of less than 1:1, adverse weather conditions,
excess water handling, and capital costs of a stock issue. Total mining cost
is $4.50 per cubic yard.
Model Mine 2 represents average logistics. Total mining cost is $4.03 per
cubic yard.
Vl-21
-------
Representative Mine 3 is a moderate-cost scenario. Costs for this model
are based on topographic confinement, high-cost road logistics, isolated and
intermittent permafrost conditions in the reserves, a short mining season, and
capital costs of a loan. Total mining cost is $6.01 per cubic yard.
b. Region 7; Lower 48 States
Very Small and Small Open-Cut Mines; Region 7; Lower 48 States
Representative mining costs were calculated for three very small and small
open-cut mines in the lower 48 states. Model Mine 1 represents optimal
conditions. Baseline conditions were assumed for this model, but stripping
was eliminated resulting in a total mining cost of $3.69 per cubic yard for
the small mine and $4.11 for the very small mine.
Representative Mine 2 duplicates the baseline model mine. Total mining
cost is estimated at $4.01 per cubic yard for the small mine and $4.47 for the
very small mine.
Representative Mine 3 is similar to the baseline model mine except for the
assumption of lower stripping ratios resulting in a total mining cost of $3.35
per cubic yard for the small mine and $4.34 for the very small mine.
Medium Open-Cut Mine; Region 7; Lower 48 States
Model mine costs were calculated for three medium-sized lower 48 mines.
Model Mine 1 represents favorable operating conditions. Modifications to
baseline assumptions for this model include confined conditions, clay and
gravel pay material, no advance stripping and lower stripping ratios,
resulting in a total mining cost of $4.18 per cubic yard.
Representative Mine 2 was based on a desert placer mine. Cost
modifications for this case include high-cost road logistics, greater than 10
percent boulders in the pay gravel, caliche conditions, extreme heat and
stripping ratios of 1:1 to 3:1. Total mining cost for this model is $4.66 per
cubic yard.
VI-22
-------
Representative Mine 3 is similar to the baseline model mine except for the
assumption of lower stripping ratios resulting in a total mining cost of $3.30
per cubic yard.
Large Open-Cut Mine; Region 7; Lower 48 States
Model mining costs were calculated for three large open-cut mines in the
lower 48. Representative Mine 1 was based on a low-cost operation.
Modifications to baseline conditions included clay lenses in the pay zone and
no advance stripping resulting in a total mining cost of $3.13 per cubic
yard.
Representative Mine 2 duplicates the baseline model mine. Total mining
cost is estimated at $3.10 per cubic yard.
Representative Mine 3 has a lower stripping ratio than the baseline model
mine resulting in a total cost of $2.85 per cubic yard.
2. Small Dredges
Two representative mines were developed for small dredges. Representative
Mine 1 is indicative of a remote site. Modifications to baseline mining cost
include confined conditions, short-haul, low-cost large air logistics, and
limited water supply. Total mining cost is $3.57 per cubic yard.
Representative Mine 2 is based on high-cost assumptions. Modifications to
baseline costs are made to reflect confined conditions, combination access
conditions, access restrictions during the winter season, clay lenses in the
pay gravel, and stripping ratios greater than 1:1. Total mining cost is $5.12
per cubic yard.
2063C
VI-23
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VII. ECONOMIC IMPACTS
A. Introduction
EPA has solicted comments from the industry, interested organizations and
individuals on the Agency's previous analysis of economic impacts of effluent
guidelines on the gold placer mining industry. In response to the comments
received during the comment periods/ EPA recognized that further refinement of
the analysis was required. Accordingly, the Agency gathered additional
information relating to the industry. The Agency has used this information to
re-evaluate previous assumptions and has revised the economic methodology to
incorporate the new data provided in comments.
The major difference between the impacts developed at proposal and for
this final notice concerns the results shown in the baseline situation, i.e.,
the estimated number of mines operating profitably prior to imposition of the
effluent guideline compliance costs. At proposal, EPA estimated that a large
number of previously viable mines (31 percent of the U.S. gold placer mines)
would not operate in the baseline. This projection primarily resulted from
inefficiencies built into the model mine assumptions including lower
production volumes, and overstated costs for leasing, debt and auxilliary
equipment.
More current data on the number of operating mines indicate that many
mines have closed. Our current estimate of 457 U.S. mines in 1986 (compared
to 568 in 1984) reflects attrition due to low gold prices in 1984 and 1985.
The current analysis assumes a starting level of 457 mines and shows only a
few baseline closures (i.e., closures prior to imposition of regulatory
expenses) and, like the proposal results, few incremental closures due to the
compliance costs. As was the case for the analysis of the proposal, the most
significant effects are profit reductions at the operating mines.
The following discussion summarizes the final economic methodology, and
notes where changes have been made in the assumptions used by the Agency
relative to the methodology at proposal.
VII-1
-------
B. Methodology
The economic -impacts presented in this analysis result from compliance
costs incurred by the industry due to the placer gold effluent guideline
regulations. The Agency estimated the required capital investment and annual
operating and maintenance costs for several alternative pollution control
technologies. To the extent that these added pollution control costs raise
the production costs of a placer gold mine/ a mine owner must either absorb
the increase or go out of business. Those that remain in business suffer a
reduction in the earnings and profitability of gold placer mining operations.
An analysis of the profitability of mines after the imposition of the cost
of pollution control was used to estimate the number of mines projected to
close as a result of the regulations. To examine the economic impact of these
increased costs, the Agency has developed an economic model that estimates the
profitablity, production and employment of placer gold mines before and after
compliance with the effluent guidelines.
The following sections describe the final revisions made to the economic
impact analysis methodology.
1. Model Mine Development
To establish operating costs for the current producers of gold from placer
mines in the U.S., EPA first developed 'baseline* model mines for several
sizes and types of placer operations. 'Baseline" refers to the costs of
operating a gold placer mining operation prior to imposing any regulatory
controls or related expenses. In light of data obtained since the effluent
guidelines were proposed, EPA has modified the baseline model mine sizes on
which the Agency's economic impact analysis is based. In the notice of
proposed rulemaking, the Agency had subcategorized mines into four segments,
based on size of operation (20, 50, 100 and 180 cubic yards of bank run ore
processed per hour) and type of operation (dredge and open-cut). The final
methodology uses six mine types to represent mines in Alaska and the lower 48
states.
VII-2
-------
The new sizes chosen as the basis of the baseline model mines are as
follows:
Value Used in Baseline Analysis
Mine Type (cubic yards annually)
Very Small Open-cut 18,000
Small Open-cut 35,000
Medium Open-cut 150,000
Large Open-cut 340,000
Small Dredge 216,000
Large Dredge 800,000
EPA previously estimated that there were 568 active mining operations in
1984 that would be subject to the effluent guidelines. Based upon new data
from state agencies and from industry parties, the estimated number of active
gold placer mines is 457, of which 192 are in Alaska and 265 are in the lower
48 states (Table VII-1). Almost all of these mines are open-cut operations of
various sizes.
2. Operating Cost Variability Factors
The methodlogy employed to estimate impacts began with the development of
the baseline models described above. However, the Agency could not model
every type of gold placer mining operation since each mine is a unique entity
with its own site-specific characteristics. To reflect variable site
conditions such as transportation, water availability, weather, topography,
geology, and geography, the Agency derived numerical cost factors to modify or
adjust baseline cost estimates according to those conditions prevalent in six
regions in Alaska and in the lower 48 states. These factors are described in
detail in Chapter VI. The use of variable cost factors in the final economic
methodology is a major improvement relative to the previous analysis.
VII-3
-------
TABLE VII-1
ESTIMATED NUMBEP. OF D.S. GOLD PLACER MINES, BY TYPE, 1986
,
MINE TYPE/SIZEa .
Open-Cut Mines:
Very Small
Small
Medium
Large
Dredges
All Types
ALASKA
79
71
32
3
2
192
LOWER 48 STATES
117
118
28
1
1
265
TOTAL D.S.
196
189
60
9
3
457
aOpen-cut mines reflect these annual ore processing capacities: very
small * 1,500 - 35,000; small » 35,000 - 70,000 cubic yards; medium » 70,000
230,000 cubic yards; large * 230,000 - 340,000 cubic yards.
VII-4
-------
Comments received from the industry revealed that it was necessary to take
account of mine-site variations which affect placer mine operating costs.
Based on historical data and information obtained by EPA in Alaska during the
summer of 1986, the Agency found that it was possible to differentiate the
economic modelling to reflect differing conditions in the placer mining
regions of Alaska. The Agency divided Alaska into six regions, according to
the boundaries established by the Alaska Office of Mineral Development as
cited in the report Alaska's Mineral Industry 1985. The Agency then assigned
cost factors which reflected the conditions found in the those regions. For
example, for miners located in Alaska's northern region, the Agency calculated
factors to reflect the cost of coping with permafrost and transportation
logistics associated with operating in a remote region.
3. Supply Curves and Closure Projections
The application of the variable cost factors described above resulted in
the development of "representative" mines for each mine type in each region.
For each representative mine, the Agency calculated precompliance operating
costs based on dollars-per-cubic-yard of ore processed and then converted this
value into dollars-per-fine-ounce of gold production; that is, the cost in
dollars of producing a fine ounce of gold prior to imposing any regulatory
controls and related expenses. In this way, the Agency developed a systematic
method of comparing mining costs under a variety of conditions for the placer
gold mining industry.
The Agency then used these data to generate supply curves for each mine
size in each region. The supply curves represent the total quantity of gold
produced by each mine type in each region. In order to estimate the supply
curves, the Agency derived total operating costs of the lowest and highest
cost mine for each mine type in each region. Interpretation of the supply
curve is based on the economic principle that a gold placer mining operation's
cost per fine ounce of gold produced must be lower than the price of gold in
order for the mine to continue operating as a viable, profitable entity.
VII-5
-------
For this analysis, total cumulative gold production is derived by summing
all gold produced by active placer gold mining operations in Alaska and the
lower 48 states for the 1986 mining season. For example, in the southwestern
region of Alaska there are estimated to be 12 active small open-cut mines.
According to the small baseline model mine, these mines process on average
35,000 cubic yards each per season or a total of 350,000 cubic yards of
bank-run ore. Seasonal production of ounces of "raw" gold (i.e., mine run
gold) is calculated by multiplying the total cubic yards of bank-run ore
processed by the average ore grade. The average ore grade is measured in
ounces of gold recovered per cubic yard of ore processed. Fine ounces of gold
are then derived by application of gold fineness, or purity, values determined
for each region. (EPA procedures and assumptions with respect to gold
fineness are described in segment 4 below). Cumulative gold production at any
particular point on the supply curves is equal to the sum of the production of
all mines that can deliver gold at a cost less than or equal to that point on
the supply curve.
To determine the amount of gold production lost and the number of mine
closures resulting from implementing effluent guideline limitations, a
post-compliance supply curve is estimated which takes into account the costs
of meeting the effluent guideline. All mines with total post-compliance
operating cost.s (on a per-ounce of gold recovered basis) greater than the
price of gold per ounce are projected to close (i.e., would not operate the
following season) due to regulatory controls. Precompliance (baseline)
production losses and resulting mine closures (i.e., prior to imposition of
compliance costs) have been estimated to derive the actual production losses
and mine closures resulting directly from the imposition of pollution control
compliance costs. These results are discussed in Section VII-C.
4. Ore Parameters and Gold Valuation
In light of comments and data received by the Agency during the past few
years, EPA is revising its previous assumptions concerning ore grade, fineness
and nuggets. In the notice of proposed rulemaking, EPA estimated that all
placer gold mined by the industry has an ore grade .022. That estimate was
VII-6
-------
based on data contained in studies conducted by the U.S. Bureau of Mines.
Industry parties commented that this estimate was too high, and the Agency
commissioned additional study of the ore grade question during the 1986 mining
season. On the basis of additional data collected by EPA, we have concluded
that assigning different ore grade values for each of the regions in Alaska
and for the lower 48 states more accurately reflects field conditions than
assuming only one ore grade value for all mines, regardless of location. The
Agency recognizes that ore grade will, in fact, vary somewhat from
site-to-site. However, it is not feasible for EPA to collect data on ore
grades found at every mine in Alaska and the lower 48 states. In addition, it
is impossible for the Agency to calculate operating costs for the mine
subcategories based on an infinite number of ore grade values. EPA believes
that taking account of ore grade variations from region-to-region is the best
available method to capture site-specific conditions to the maximum extent
possible.
As previously mentioned, the Agency has assumed that 19 percent of the
gold mined by the very small and small, open-cut mines is in nugget form. For
medium and large open-cut mines, the Agency assumes that 15 percent and 5
percent of their mined gold is in nugget form, respectively. A nugget bonus
of 23 percent above the price of gold for nuggets greater than 14 mesh is also
applied. The Innovative Grants Program in Alaska reported coarse gold
recovery for specific placer mining grant numbers. Recovery of coarse gold
ranged from 22 to 29.11 percent greater than 12 mesh and from 11.4 to 13
percent greater than 14 mesh. The average of the percentages reported that
were greater than 14 mesh is 19 percent. We believe these data support our
assumptions with respect to nugget recovery.
At proposal, the Agency assumed that all placer gold had a fineness of
.800, i.e., the gold was 80% pure. Eighty percent represented the average of
the data possessed by the Agency at the time the effluent guidelines were
proposed. In light of comments received during the proposal and notice which
criticized these values, EPA reviewed survey responses submitted by gold
miners over the past few years. EPA is now using gold an average fineness of
858 parts per thousand which reflects the average reported value by miners.
The value used for Lower 48 States is 900 parts per thousand.
VII-7
-------
5. Operating Cost Parameters
Based on comments and other information gathered during the 1986 mining
season, the Agency has revised its method of estimating the operating costs of
the baseline model mines so as to more accurately reflect actual mining
conditions. In response to comments, the revised methodology assumes that
miners employ used equipment that is in good condition. As a result of this
revision, the Agency has reduced the production rates of the baseline model
mines to reflect the fact that used equipment operates less efficiently than
new equipment.
A related point concerns equipment ownership. At proposal, the Agency
assumed that mining equipment was leased. After the most recent field
investigation, EPA has concluded that in fact the vast majority of miners own
the equipment they use, and the Agency has revised its cost estimates
accordingly. As a result of this change, the final economic methodology
expressly calculates the costs of amortization and depreciation. The
methodology supporting the proposal did not address these factors because they
were presumed to be incorporated into leasing charges.
EPA has also revised its method of calculating "auxilliary" expenses,
which includes the costs of pumps, generators, wiring, piping, camping
supplies, freighting, start-up and clean-up, on-site and off-site maintenance,
and financing charges. Previously, the Agency did not have adequate data to
calculate these costs individually, and the methodology supporting the
proposal estimated that these costs equaled 25% of the model mines' heavy
equipment costs. Miners stated in comments that this assumption was
unrealistic. Since proposal, the Agency has gathered additional information
on these inputs as specific cost items, and the final economic methodology
itemizes the auxilliary expenses for each baseline model mine.
One cost component of placer mines is smelter fees, i.e., the cost of
having the gold processed by a smelter. In the proposal, the Agency assumed
that smelter costs equaled two to three percent of the value of the material
that was smelted. Comments by miners contested this figure. EPA revisited
this question during the past year and obtained the fee schedules of various
VII-8
-------
smelters. Smelters vary their rates according to the volume of gold submitted
by the miner. Miners who supply more gold to the smelter are charged a lower
rate. The final economic methodology reflects this practice by varying
smelter fees based on the size of the baseline model mine.
As previously indicated, EPA used the 1984 average gold price ($360 per
troy ounce) in deriving revenues in the proposal's economic analysis. For
this analysis, revenue estimates were calculated based on the average price of
gold during the 1986 and 1987 mining season: $377 and 455 per troy ounce,
respectively. A sensitivity analysis was also performed with a gold price of
$300 per ounce.
C. Impact Analysis Results
This section of the report presents and discusses the results of the
economic analysis. The first segment of this section describes the approach
to the sensitivity analysis described throughout Section C.
1. Approach Dsed in the Sensitivity Analysis
To assess the impact of the cost of compliance of these regulations on the
economic viability of placer gold mining operations, the Agency developed an
economic impact methodology based on model mines of various types, sizes and
configurations (as described in Section B). The size of the mining venture,
in terms of the average amount of ore processed on an annual basis, has a
significant effect on the mine's potential to absorb compliance costs and
continue to operate profitably.
VII-9
-------
At the time of the March 1987 notice, the Agency allocated all mines
across a range of mines sizes assuming a normal distribution. The Agency
modified this assumption in response to comments that stated that our analysis
did not account for mines in the very small sizes. The Agency has modified
this assumption by assigning the following number of mines to each size:
Open-cut
Mine Size Alaska Lower 48
18,000 79 117
35,000 71 118
150,000 32 28
340,00 8 1
We believe this distribution of model mine sizes represents the U.S. placer
gold mining industry.
The best data available to EPA indicate that four onshore and two offshore
dredges operated in Alaska in 1986r of those onshore, three were very small
(not covered by this rulemaking) and one was large (Table Vll-2). One placer
gold dredge was known to operate in the lower 48 states in 1986 (Yuba).
2. Baseline Economic Issues
In response to comments received on the economic analysis prepared at
proposal (which indicated a large number of baseline closures), the Agency
reevaluated the financial performance of mines in the placer gold mining
industry. EPA reassessed several previously-used assumptions which resulted
in the finding that many mines were unprofitable prior to imposition of
wastewater controls. This finding was inconsistent with the fact that several
hundred miners operated successfully during the last two sea-sons and plan to
do so in the future. The Agency believes the assumptions used in the final
analysis more accurately reflect the conditions faced by the placer gold
mining industry.
EPA now estimates that there are 67 baseline closures when gold is valued
at $377 per ounce and two baseline closures when gold is valued at $455 per
ounce. That is, some mines may be unprofitable prior to imposition of any
VII-10
-------
regulatory control and will not operate in the following season under certain
price assumptions; these mines are considered baseline closures under this
analysis.
3. Estimated Impacts
Each mine type and size was analyzed in terms of economic profitability
prior to and after incurring techology-based compliance cost options.
Technology-based options that were analyzed for economic impact include: two
variations of simple settling (options 1 and 2); two variations of recycle
(options 3 and 4); two variations of simple settling plus chemical treatment
of all water (options 6A and 6B): Additional technologies include tundra
filters and filter dams/ but these options were not the analyzed because the
very site-specific nature of these add-on technology options preclude the
Agency from relying on them in this rulemaking.
Tables VII-2 through VII-7 present the results of the economic impact
analysis for regulatory options 2, 4, and 6B. Each table presents the impacts
for mines located in either Alaska or the lower 48 states by treatment
option. The results show that the impacts of any given option lessen with
increasing mine size. This is entirely consistent with the principle of
declining marginal cost/ i.e./ as throughput increases, the cost per unit
decreases. In this industry/ as more ore is processed (and more gold
recovered), the impact of compliance costs is mitigated.
EPA examined the economic impacts of these options assuming a gold price
of $455 and $377 per ounce. The price of gold and the grade of ore are the
most significant and variable parameters in determine economic achievability.
The economic impact of meeting any option is generally greater at $377 per
ounce than at $455 per ounce. However, after analyzing and comparing the
economic results with gold prices at $377 per ounce, the Agency believes that
the standards are economically achievable at this gold price. Though total
mine closures increase, the impacts remain in the acceptable range.
VII-11
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TABLE VII-2
SETTLING
OPTION 2 ALASKA
BASELINE
CLOSURES
M
M
1
to
MINE SIZE
18,000
35,000
150,000
340,000
Small Dredge
Large Dredge
NUMBER
OP MINES
79
71
32
8
1
1
$377
22
15
4
2
0
0
$455
1
0
0
0
0
0
COMPLIANCE
COST TO
SALES (PERCENT)
$377
4.2
2.2
1.0
1,0
2.8
2.4
$455
3.6
1.8
1.0
1.0
2.3
1.9
INCREASE IN
OPERATING
COSTS DUE TO
COMPLIANCE
( PERCENT)
$377
5.3
2.8
1.0
1.0
3.1
2.6
$455
5.1
2.6
1.0
1.0
3.1
2.6
RETURN ON
INVESTMENT
(PERCENT)
$377
BCa ACh
13 11
15 14
18 17
16 15
7 5
7 6
$4
BC
22
26
28
24
21
21
55
AC
22
25
28
23
19
20
CLOSURES
$377
5
1
0
0
0
0
$455
5
1
0
0
0
0
aBefore compliance.
bAfter compliance.
-------
TABLE VI I- 3
SETTLING
OPTION 2 LOWER 48
INCREASE IN
OPERATING
COMPLIANCE COSTS DUE TO
BASELINE COST TO COMPLIANCE
CLOSURES SALES (PERCENT) (PERCENT)
NUMBER
MINE SIZE OP MINES $377 $455 $377 $455 $377 $455
H 18,000 117 12 0 4.5 3.7 5.4 5.2
M
1
£ 35,000 118 7 0 2.2 1.9 2.9 2.9
150,000 28 51 1.0 1.0 1.0 1.0
340,000 1 0 0 1.0 1.0 1.0 1.0
Large Dredge 1
RETURN ON
INVESTMENT
(PERCENT) CLOSURES
$377 $455
BCa ACh BC AC $377 $455
11 8 24 23 3 2
19 17 34 34 0 0
14 13 23 23 0 0
22 22 37 37 0 0
aBefore compliance.
bAfter compliance.
-------
TABLE VII-4
RECYCLE
OPTION 4 ALASKA
BASELINE TREATMENT IN
COMPLIANCE
BASELINE COST TO
CLOSURES SALES (PERCENT)
NUMBER
MINE SIZE OP MINES
18,000
35,000
150,000
340,000
Small Dredge
Large Dredge
79
71
32
8
1
1
$377 $455 $377
22 1 7.5
15 0 5.4
4 0 2.0
2 0 1.6
0 0 1.1
0 0 1.0
$455
6.5
4.6
1.7
1.4
1.0
1.0
PLACEMENT
INCREASE IN
OPERATING
COSTS DUE TO
COMPLIANCE
(PERCENT)
$377
9.5
7.0
2.7
2.2
1.3
1.0
$455
9.4
6.8
2.7
2.0
1.3
1.0
RETURN ON :
INVESTMENT
(PERCENT) CLOSURES
$377 $455
BCa ACb BC AC $377
13 10 22 20 14
15 13 26 24 6
18 16 28 28 0
16 15 24 23 0
7 6 21 20 0
7 7 21 21 0
$455
8
5
I
0
0
0
aBefore compliance.
^After compliance.
-------
TABLE VII-5
RECYCLE
OPTION
4 LOWER 48
BASELINE TREATMENT IN PLACE
H
H
LO
BASELINE
CLOSURES
NUMBER
MINE SIZE OP MINES $377 $455
18,000 117 12 0
35,000 118 7 0
150,000 28 51
340,000 1 00*
Large Dredge 1
COMPLIANCE
COST TO
SALES (PERCENT)
$377 $455
8.1 6.7
5.7 4.7
2.0 1.7
1.6 1.3
INCREASE IN
OPERATING
COSTS DUE TO
COMPLIANCE
(PERCENT)
$377 $455
9.7 9.5
7.5 7.3
2.6 2.5
2.3 2.3
RETURN ON
INVESTMENT
( PERCENT)
$377 $455
BCa ACb DC AC
11 6 24 20
19 15 34 30
14 12 23 22
22 21 37 36
CLOSURES
$377 $455
5 4
2 1
0 0
0 0
aBefore compliance.
bAfter compliance.
-------
TABLE VI I- 6
CHEMICAL
OPTION 6 ALASKA
COMPLIANCE
BASELINE COST TO
CLOSURES SALES (PERCENT)
NUMBER
MINE SIZE OF MINES $377 $455 $377 $455
< 18,000 79 22 1 10.0 9.0
M
£ 35,000 71 15 0 7.3 6.2
150,000 32 40 3.2 2.6
340,000 8 20 3.2 2.7
4
Small Dredge 1 0 0 4.1 3.4
Large Dredge 1 00 3.2 2.7
INCREASE IN
OPERATING
COSTS DUE TO
COMPLIANCE
(PERCENT)
$377 $455
13 13
9.4 9.2
4.3 4.3
4.2 4.2
4.6 4.6
3.6 3.6
RETURN ON
INVESTMENT
(PERCENT)
$377
BCa ACb
13 10
15 12
18 16
16 14
7 4
7 5
$455
BC AC
22 20
26 24
28 27
24 22
21 18
21 19
CLOSURES
$377 $455
22 12
8 6
0 1
0 0
0 0
0 0
aBefore compliance,
bAfter compliance.
-------
M
M
TABLE VII-7
CHEMICAL
OPTION 6 LOWER 48
INCREASE IN
OPERATING
COMPLIANCE COSTS DUE TO RETURN ON
BASELINE COST TO COMPLIANCE INVESTMENT
CLOSURES SALES (PERCENT) (PERCENT) (PERCENT) CLOSURES
NUMBER
MINE SIZE OP MINES $377 $455 $377
18,000 117 12 0 11.3
35,000 118 7 0 7.6
150,000 28 51 3.2
340,000 1 0 0 3.1
«
Large Dredge 1
$377 $455
$455 $377 $455 BCa ACb BC AC $377 $455
9.4 13.6 13.4 11 4 24 18 7 6
6.3 10.1 9.9 19 13 34 29 2 2
2.7 4.2 4.0 14 12 23 22 0 0
2.6 4.4 4.4 22 20 37 35 0 0
i 1
aBefore compliance.
bAftec compliance.
-------
The impact of the regulations when gold is assumed to be priced at $300
per ounce support the premise that the price of gold is the most significant
factor in determining the viability of placer gold mining operations. These
results are not pertinent/ however, given current and recent average gold
prices. The economic impacts under this price assumption are available in the
rulemaking record.
a. BPT Summary
The BPT options for all open-cut mines of all sizes reflect
simple-settling technology. The estimated 192 Alaskan open-cut and dredge
mines covered by this rule will incur annualized compliance costs for simple
settling (BPT) of $1.25 million; the estimated 265 lower 48 mines incur annual
simple settling costs of $1.17 million. The total annual cost of BPT is $2.42
million. No capital expenditures are expected to be incurred in order to
comply with this option. These total annual costs represent construction and
maintenance of four settling ponds at each mine during the season using heavy
machinery, equipment and labor already available at the mine site.
The following economic impacts are estimated given a gold price of $455
per ounce, which represents the season average reported price from May to
September of 1987. In general, BPT results in no significant adverse impacts
(see Tables VII-2 and VI1-3). Five Alaska and two lower 48 mine closures are
projected in the 18,000 cubic yard/year size group (out of 196 mines in the
group) with an associated fourteen job losses. One Alaska mine closure and
three job losses are expected in the 35,000 cubic yard/year size category.
For Alaska mines, the ratio of compliance cost to sales ranges from 1.3 to
3.6 percent; the increase in operating costs due to compliance ranges from 1
to 5.0 percent.
For dredges, the compliance cost to sales ratio ranges 1.9 to 2.3 percent
and the increase in operating costs due to compliance ranges from 2.6 to
3.1 percent. In both Alaska and the lower 48, the decline in rate of return
on investment ranges from zero to 2 percent under BPT.
VII-18
-------
b. BCT Summary
The Agency is not promulgating BCT limitations guidelines for this
subcategory.
c. BAT Summary; Water Recirculation with Simple Setting (Recycle)
The Alaskan mines will incur capital and annualized compliance costs for
BAT of $1.94 million and $2.77 million; mines in the lower 48 will incur costs
of $1.93 million and $2.55 million, respectively. Total capital and total
annual costs for BAT are $3.87 million and $5.32 million, respectively, after
taking treatment in place into account. The incremental capital and annual
costs to go from BPT to BAT are $3.87 million and $2.91 million, respectively.
Given a gold price of $455, eight Alaskan mine closures (three incremental
to BPT) are projected in the 18,000 cubic yd/yr category with an associated 16
job losses (six incremental to BPT) (Table VII-4). Five mine closures (four
increment to BPT) are projected in the 35,000 cubic yard/year model with an
associated 15 job losses projected in the 150,000 cubic yard/year model. For
Alaska mines the ratio of compliance cost to sales under BAT ranges from 1.4
to 6.5 percent; the increase in operating costs due to compliance ranges from
2 to 9.4 percent.
For dredges, the compliance cost to sales ratio ranges from 1.0 to
1.3 percent and the increase in operating costs due to compliance ranges from
1.0 to 1.3 percent under BAT. The return on investment for Alaska open-cut
and dredge mines drops in the range of from zero to two percent.
Four lower 48 mine closures (two incremental to BPT) are projected in the
18,000 cubic yard/year category with an associated eight job losses (four
incremental to BPT as shown in Table VIII-5). One closure and an associated
two job losses are projected in the 35,000 cubic yard/year model. Return on
investment drops from one to four percent at mines in the lower 48 under BAT.
VII-19
-------
EPA believes that given the above impacts, the BAT limitations based upon
recirculation of process wastewater and simple settling are economically
achievable. Closures represent a small percentage of the industry. Job
losses associated with these closures are minimal. The results show that
mines remining remain profitable business ventures.
As previously described in Chapter 5, about 30 percent of the mines in
Alaska have indicated that they practice full recycle and another 30 percent
operate under partial recycle conditions. This lends further credence to our
conclusion that there is no economic impediment to the requirement that all
mines comply with 100 percent recycle of process water regardless of mine size.
Chemically Assisted Settling
EPA has examined the costs and impacts if all mines adopt this treatment
process. The Alaskan mines would incur capital and annualized compliance
costs foe chemical settling of $526 thousand and $4.21 million; mines in the
lower 48 would incur capital and annualized costs of $527 thousand and $3.65
million, respectively.
Economic impacts are greater for chemically assisted settling than for
BAT. Under the $455 price assumption, twelve Alaska mine closures (four
incremental to BAT) are projected in the 18,000 cubic yard/year category with
an associated 24 job losses (eight incremental to BAT). Six closures (one
incremental to BAT) and an associated 18 job losses (three incremental to BAT)
are projected at the 35,000 cubic yard/year category. For Alaska mines the
ratio of compliance cost to sales ranges from 2.6 to 9.0 percent; the increase
in operating costs due to compliance ranges from 3.9 to 13 percent. For
dredges, the compliance cost to sales ratio ranges from 2.7 to 3.4 percent and
the increase in operating costs due to compliance ranges from 3.6 to
4.6 percent.
VII-20
-------
Economic impacts for mines in the lower 48 include 6 mine closures (two
incremental to BAT) at the 18,000 cubic yard/year size, two closures (one
incremental to BAT) at the 35,000 cubic yard per year size. In addition,
there are other more significant increases in both operating costs due to
compliance and compliance costs to sales under chemically assisted settling
when compared to BAT.
d. New Source Performance Standards (NSPS)
In establishing limitations for new sources, the Agency considers whether
requiring more stringent treatment for new operations compared to existing
mines will create disincentives to investment, or barriers to entry. The
discussion in Chapter VI presented the method used in determining the average
cost of compliance for the recycling option. In general, cost of compliance
were no different for new or existing plants. Thus, the selection of equally
stringent, economically achievable options will not create barriers to entry
for new placer gold mining operations. Nines will incur slightly different
treatment costs depending upon the individual mine site as well as the amount
of recycling equipment already at the mine.
2067C
VII-21
-------
VIII. SMALL BUSINESS ANALYSIS
Under Public Law 96-354, EPA must prepare a Regulatory Flexibility
Analysis for all regulations proposed after January 1, 1981 that have a
significant impact on a substantial number of small entities. When such
regulations create significant impacts, the Agency must evaluate and consider
alternative requirements that mitigate impacts on small entities. This
section of the report represents EPA's small business analysis for placer gold
mines.
EPA previously defined small mines as those in two classifications: (1)
Recreation/Assessment Mines as those processing 20 cubic yards or less of ore
per day; (2) Small Commercial Mines as those active commercial mines
processing 500 cubic yards or less of ore per day. EPA did not have a
reliable count for mines in the Recreation/Assessment class at the time of
proposal, and this continues to be true. The number of small commercial mines
was estimated at 178 in 1984, representing about 32 percent of the total
number of commercial placer mines.
The Agency has excluded Recreation/Assessment mines from the final
regulations. The basic rationale for this exclusion is that these mines have
such small and intermittent discharges that their environmental impact is
negligible. Further, their revenues, if any, are insufficient to justify any
treatment systems. However/ these mines will now be defined on an annual
processing volume basis (less than 1,500 cubic yards ore/year) rather than on
a daily basis.
EPA analyzed a group of small commercial mines processing less than 35,000
cubic yards per year to evaluate whether treatment options less stringent than
those described in Chapter VII would be appropriate. EPA is defining small
mines as those processing 70,000 cubic yards or less of ore annually.
Approximately 150 (about 80 percent) of the 192 mines that operated in Alaska
in 1986 fall into this classification. About 90 percent (235 of 265) of the
gold placer mines in the lower 48 states are in this classification. In
Alaska, these mines generally employ less than ten persons each and have
VIII-1
-------
average revenues of less than $300,000. In the lower 48 states, these mine
sizes have average annual revenues of about $200,000 and generally employ
three persons.
Based on impacts presented in Chapter VII, EPA does not intend to
promulgate less stringent treatment limitations for mines processing less than
35,000 cubic yards per year. The Agency considered a separate, less stringent
limitation for mines processing less than 35,000 cubic yards per year by
setting BAT equal to BPT. The Agency rejected setting BPT equal to BAT for
several reasons. First, the incremental economic impacts of going from BPT to
BAT for very small mines were not significantly different from the incremental
economic impacts for the other mine sizes. Second, the economic impacts would
not result in any widespread significant adverse economic impact on small
businesses. Like actual mining operations, the economic model is extremely
sensitive to gold price. Although the very small mine closures might increase
in the long run with lower gold prices, EPA's economic analysis indicates that
lower prices would cause additional closures even without imposition of
regulatory controls. The majority of mines in Alaska and the lower 48 would
continue to be productive and profitable with no significant adverse impact on
total placer gold production in these areas. Additionally, information
submitted by the Alaska Department of Environmental Conservation supports the
Agency's position that all mines, regardless of mine size, do recirculate
process water. These data indicate that very small mines operating in regions
where water availability is scarce have instituted recirculation to conserve
water. EPA concludes that there is no economic justification for excluding
small gold placer mining operations from achieving the BAT effluent
limitations based on recirculation of process water.
2069C
VIII-2
-------
IX. LIMITS OF THE ANALYSIS
.This chapter discusses the general accuracy of the study research and data
sources.
A. Specifying the Baseline Conditions
It is important to recognize and distinguish between what is currently
required of gold placer miners in terms of water discharge treatment
requirements versus the requirements of these regulations. In many states,
current water discharge permits require some level of treatment, frequently to
meet state water quality standards. In the State of Alaska, settling ponds
are the most common method of treating wastewater discharge to achieve the
limits established in NPDES permits. The open-cut baseline model mines
designed for this study do not contain any costs for the construction and
maintenance of settling ponds. To the extent such requirements are in place,
the incremental effects of BPT described in this report will already have
occurred. Therefore, the impacts presented here generally overstate the
incremental impacts of the regulations now being promulgated. To the extent
recycling is currently being practiced, this was accounted for in the
representative model mines. Data submitted by the State of Alaska was used to
estimate the percentage of recycling currently being practiced. For a further
discussion of this issue, see Chapter V.
B. Assumptions for Baseline Conditions
The baseline model mines were designed and costed in the lower 48 states
and moved to Alaska using the variance cost factors as described in Chapter
VI. The transport of equipment and machinery to Alaska was based on bulk rate
freight using either rail, ship or airplane transportation. To the extent
mining equipment is currently at a mine site, the operator would not incur
these transportation charges. The inclusion of these transportation charges
for existing mines causes an overestimate of operating costs.
IX-1
-------
C. General Accuracy
The U.S. gold placer mining industry is complex in terms of the number,
ownership, location, type, and size of mines. Variations in climate, length
of season, types of overburden, and gold-bearing gravels contribute to this
complexity. Although open-cut operations are fairly similar in terms of
equipment used (bulldozers, front-end loaders, sluices) and operating methods,
there are variations between operators and from site to site. There is no way
for the mine model to account for operator skills, efficiencies and
resourcefulness. The basic machine and equipment capacities were utilized to
develop the model mines. Variations in individual abilities and skills make
it difficult to quantify the impacts of these regulations.
Data used in this report were collected from a wide variety of sources
including individual miners, mining service businesses, universities, and
state and federal agencies. A substantial effort was made to collect
supplemental data to improve the accuracy of this final analysis. Efforts
were made to evaluate the data available and to update these materials
wherever possible. Checks were made with informed sources in both industry
and government to help ensure that data were reliable and representative. EPA
relied upon the 1984, 1985, and 1986 questionnaires submitted by mine
operators to derive certain economic assumptions about mining operations.
Frequently, the assumptions are as good as the data contained in the surveys.
An example of the accuracy problems encountered is data on annual placer
gold production reported by the U.S. Bureau of Nines. Informed sources report
that actual gold placer production is four to ten times what is reported by
the Bureau. Reports indicate the U.S. Bureau of Mines defers to the State of
Alaska for actual gold production in that state.
D. Data Availability
Although the study was enhanced by substantial data collection and
analytic efforts, data discrepancies exist. After declining in the 1940s,
IX-2
-------
placer mining only revived appreciably in the U.S. in 1980 as gold prices
increased. Unfortunately, many of the data collection efforts by state and
federal agencies stopped in the 1950s and have not resumed. State agencies
within the same state report wide variations in the number of active placer
mining operations as well as different methods of reporting mine sizes. This
is discussed in Chapter III. Additional sources of data problems are
discussed below.
1. Production Volume
Based on site visits, additional data collection, industry comments and
state agency publications, EPA revised the production volumes on an annual
basis by designing baseline model mines. The number of mines allocated into
process volume categories of very small, small, medium, and large open-cut
operations were based on Alaska state agency publications and a review of
permit applications for several years. This distribution may or may not have
been the actual case in 1986. However, the total cubic yards of production
estimated by the model mines is consistent with Alaska state agency figures.
This assignment of mines to various mine sizes results directly in determining
the amount of gold produced by mine size in Alaska and the lower 48 states.
One of the most significant determinants of income is the ore grade. The
Agency relied on historical regional data, Bureau of Mines publications and
survey data collected by EPA. Ore grade varies widely within regions and
perhaps even on the same placer claim. Thus, the revenue estimates, while
valid overall, do not reflect site-to-site variations.
2. Financial Characteristics
Basic data on capital investment, operating costs and profitability are
generally unpublished and unavailable for the placer gold industry. Similar
data on a mine-specific basis are also not available. Therefore, the Agency
designed economic models to estimate gold production and income. The models
reflected a reasonable amount of data collected from individual miners.
Although some miners are more skilled than others at rebuilding and
IX-3
-------
maintaining heavy equipment, and are thus able to reduce operating costs
accordingly, the model mine analysis assumes uniformity among miners for a
given mine size. The analysis does not account for the expected variations in
financial position among miners that reflect individual talents.
3. Economic Impact Parameters
Chapter VII of this report examines the economic impacts resulting from
compliance with various technology-based control options. Cost-to-sales,
profitability, closures, and jobs lost are all largely contingent upon the
initial assumptions. The profit margins of placer gold mines are model
results based on all the assumptions used in determining revenues, i.e., gold
fineness, nugget bonus, smelter fees, ore grade, etc. Individual mine revenue
and income will certainly vary given the site-specific conditions encountered
by placer miners. Actual mine revenues, income levels and associated
financial ratios are contingent upon those site-specific conditions.
The issue of federal, state, and local taxes was avoided in this analysis
due to the complexity of the tax codes and the issue of depreciation
expenses. Income projected by the Agency are before tax; any tax adjustments
for depreciation, business expenses, and pollution control investment are not
considered here.
The one economic parameter that does not rely on estimates of revenues and
income from placer mines is the percent increase in operating costs due to
compliance. This key parameter is also a good measure of economic burden
resulting from the regulations. The basis for this parameter is the estimated
baseline operating costs discussed in Chapter VI. The Agency developed model
mines with appropriate production volumes and equipped these mines with the
necessary heavy equipment to process specific production volumes. Also
included in the models were the necessary auxilliary expenses of piping,
tanks, pumps, camp supplies, etc., to maintain and operate a placer mining
operation in Alaska and the lower 48 states. The operating cost estimates and
compliance cost estimates are based on actual data and information gathered
from many sources as discussed in this report.
IX-4
-------
The indirect operating cost component of total operating costs reflects
EPA assumptions on salvage value and depreciation schedules. To the extent a
placer operation has total direct operating costs below the price of gold, the
mine entity will continue operating since the large capital investment in
equipment has been made. As long as direct operating costs are covered by
revenues, the miner will minimize his economic loss by continuing to operate.
Once the direct operating costs exceed the price of gold, the miner will
minimize his loss by shutting down the operation. These decisions are largely
contingent upon the miner's investment and indebtedness due to heavy equipment
purchases. The baseline model assumes the equipment was used and in good
condition. The depreciation schedule selected determines the indirect
operating cost component of total operating costs.
4. Gold Prices
The basic gold prices used in this analysis are $377, $455, and $300 per
ounce. This factor also plays a critical role in the number of placer mining
operations, as mines enter and exit the industry based largely on gold
prices. The volatility in gold prices makes gold placer mining a very
transient and high-risk enterprise for small operators.
5. Miscellaneous
Loss of income or the lowering of profitability to a placer gold mine is
certainly an indicator of economic impact, but salaries and wages of employees
are unaffected by the compliance cost options. The analysis is structured to
reflect that employees continue to receive their same wages regardless of
which compliance option is selected (unless a closure is projected). Thus the
owner/operator receives a salary equivalent to the hourly wage rate used for a
mine of a given size, type, and location. The income loss impact is felt
primarily by the owners of the mining operation, if different from the
operator.
The rate of return on investment was another indicator of economic
impact. These results are presented in Chapter VII.
IX-5
-------
APPENDIX A
TABLE 1
OPERATING INPUTS AND COSTS POR THE LARGE OPEN-CUT MINE MODEL
OPERATING COST
Direct: Labor
Total
Energy
Supplies
Other
Direct:
Indirect: Depreciation
Total
Total
Amortization
Indirect:
Annual Cost:
DOLLARS
PER YEAR
$ 377,186
154,905
131,850
93,779
$ 757,720
$ 194,843
100,000
$ 294,893
$1,052,613
DOLLARS
PER YARD
$ 1.11
0.45
0.39
0.28
$ 2.23
$ 0.53
0.29
$ 0.87
$ 3.10
PERCENT
36
15
12
9
72
19
9
28
100
Equipment List
Heavy equipment is in "Used, Good" to 'Excellent* condition. High service
items are "New" to "Used, Excellent" condition.
QUANTITY TYPE
1
2
1
1
1
1
2
4
2
1
2
1300
12
Bulldozer
Bulldozer, older
Loader
Loader, older
Grader
Process Plant
Lube/fuel truck
Pickup
ATV
Welder
Generator
Pump
MAKE/MODEL
OP. COST/HR.3
(Direct)
54.90
Caterpillar D-9L
D-9L available to build ponds
Caterpillar D-9H 48.93
Caterpillar 988B 52.23
Caterpillar 988A
Caterpillar 12G 36.64
Trommel/sluice at 250 cu yd/hr
Used 4WD
Used 4WD
New 4WD
Linc/Hobart
Caterpillar
Lightning
5 ton
3/4 ton
350 cc
300 amp
100 kW
2500 gmp
Pipe, complete with fittings, etc.
Light towers Lowe
A-l
-------
TABLE 1 (continued)
Misc. Spares, tools, hose, jacks, winches
1 Warehouse, with storage shelves
1 Mechanic Shop with tool shelves, bench
1 Office with furniture, copier, telephone, etc.
1 Mess Hall with kitchen, supplies, furniture
1 Bunkhouse for 23 persons with furniture, etc.
1 Showerhouse/toilet facility
1 Gold Room/Retort with secure room and safe
15 10,000 gal fuel tanks, or equivalent
1 3,000 gal fuel tank
1 1,500 gal water tank
1 Radio telephone communication set up
1 Airstrip 1500° x 150°, gravel, built with tailings
aWhere direct operating costs are not reported per hour, they are
included in the energy, supplies or other categories of direct operating cost.
2050C
A-2
-------
APPENDIX A
TABLE 2
OPERATING INPUTS AND COSTS FOR THE MEDIUM OPEN-CUT MINE MODEL
OPERATING COST
Direct
Total
: Labor
Energy
Supplies
Other
Direct:
Indirect: Depreciation
Total
Total
Amortization
Indirect:
Annual cost:
DOLLARS
PER YEAR
$ 169,161
73,120
75,547
46,861
$ 364,639
$ 130,934
15,000
$ 145,934
$ 510,623
DOLLARS
PER YARD
$ 1.13
0.49
0.50
0.31
$ 2.43
$ 0.87
0.10
$ 0.97
$ 3.40
PERCENT
33
14
15
9
71
26
3
29
100
Equipment List
Heavy equipment is "Used, Good* to 'Excellent* condition. High service
items are 'New' to "Used, Excellent* condition.
QUANTITY TYPE
1
1
2
1
1
1
1
2
2
1
1
750 feet
Bulldozer
Bulldozer
Loader
Loader, older
Process Plant
Lube/fuel truck
Pickup
ATV
Welder
Generator
Pump
Pipe
MAKE/MODEL
Caterpillar D-9L
Caterpillar D-8K
D-8K available to build ponds
Caterpillar 988B
Caterpillar 988A
Trommel/sluice at 225 yd/hr
OP. COST/HR.3
(Direct)
54.90
42.00
52.23
Used 4WD
Used 4WD
New 4WD
5 ton
3/4 ton
350 cc
Linc/Hobart 300, 200 amp
Cat/Lister 50 kW
Cat/Light 2250 gpm
Various
8'
A-3
-------
TABLE 2 (continued)
Misc. Spares, tools, hose, jacks, winches, etc.
1 Warehouse, Shop, Powerhouse
1 Officer/Mgr Res./Retort/Safe Room
1 Mess Hall with kitchen, Shower, Laundry
1 Bunkhouse for 12 persons with furniture, etc.
all fully equipped
5 10,000 gal fuel tanks, or equivalent
2 3,000 gal fuel tank
1 1,500 gal water tank
1 Radio telephone communication set up
1 Airstrip 1500° feet x 80° feet, gravel,
built with tailings
awhere direct operating costs are not reported per hour, they are
included in the energy, supplies or other categories of direct operating cost.
2051C
A-4
-------
APPENDIX A
TABLE 3
OPERATING INPUTS AND COSTS FOR THE SMALL OPEN-CUT MINE MODEL
OPERATING COST
Direct
Total
: Labor
Energy
Supplies
Other
Direct:
Indirect: Depreciation
Amortization
Total Indirect:
Total
Annual Cost:
DOLLARS
PER YEAR
$ 48,837
21,631
21,377
17,121
$ 108,966
$ 29,902
1,500
$ 31,402
$ 140,368
DOLLARS
PER YARD
$ 1.39
0.62
0.61
0.49
$ 3.11
$ 0.86
0.04
$ 0.90
$ 4.01
PERCENT
35
15
' 15
ii
77
22
23
100
Equipment List
Heavy equipment is 'Used, Good" to "Used, Fair" condition. High service
items are in 'Used, Good" condition.
QUANTITY TYPE
1
1
1
1
1
1
1
1
1
400°
Misc.
1
1
Bulldozer
Bulldozer, older
Loader
Loader, older
Process Plant
Pickup
ATV
Welder
Generator
Pump
Cat/Other
Ltng/Other
Pipe, fittings, clamps, etc.
Spares, tools, hose, jacks, winches
Warehouse, Shop Powerhouse
Office/Residence/Retort/Safe Room
all fully equipped
MAKE/MODEL
Caterpillar D-7G
D-7G available to build ponds
Caterpillar D-7F
Caterpillar 966C
Caterpillar 966
Trommel/sluice at 70 cu yd/hr
Used 4WD 3/4 ton
New 4WD 350 cc
Linc/Hobart 300 amp
40 kW
1,350 gpm
OP. COST/HR.a
(Direct)
37.75
32.65
A-5
-------
TABLE 3 (continued)
1
1
1
1
1
10,000 gal fuel tanks
3,000 gal.. fuel tank
1,500 gal water tank
Single sideband radio
Airstrip 15008 x 80°,
, or equivalent
communication set up
gravel, built with tailings
awhere direct operating costs are not reported per hour, they are included
in the energy, supplies or other categories of direct operating cost.
2052C
A-6
-------
APPENDIX A
TABLE 4
OPERATING INPUTS AND COSTS FOR THE VERY SMALL OPEN-CUT MINE MODEL
OPERATING COST
Direct
Total
: Labor
Energy
Supplies
Other
Direct:
Indirect: Depreciation
Amortization
Total Indirect
Total
Annual Cost
DOLLARS
PER YEAR
$ 32,586
9,298
9,688
9,981
* 61,553
* 18,106
750
$ 18,856
$ 80,409
DOLLARS
PER YARD
$ 1.81
0.52
0.54
0.55
$ 3.42
$ 1.01
0.04
* 1.05
i 4.47
PERCENT
41
12
12
12
77
22
01
23
100
Equipment List
Heavy equipment is "Used, Good" to "Used, Fair" condition. High service
items are in "Used, Good" condition.
OP. COST/HR.3
QUANTITY TYPE MAKE/MODEL (Direct)
1 Bulldozer Caterpillar D-6D 34.18
D-6D available to build ponds
1 Loader Caterpillar 930 27.35
1 Process Plant Trommel/sluice at 45 cu yd/hr
1 Pickup Used 4WD 3/4 ton
1 Welder Linc/Hobart 300 amp
1 Generator Various 30 kW
1 Pump Ltng/Other 870 gpm
300' Pipe, fittings, clamps, etc.
Misc. Spares, tools, hose, jacks, winches
1 Concentrating table Various
1 Warehouse/Shop
1 Office/Residence/Retort/Safe Room
all fully equipped
1 500 gal fuel tank
aWhere direct operating costs are not reported per hour, they are included
in the energy supplies or other categories of direct operating costs.
2053C
A-7
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APPENDIX B
SXAMPIS OF A SOP?!.? C3RV5 POP. A GIVEN MINING TY?5
. IN A cr/z?: szcroN
TOTAL OPERATTNC COST
ounce of fold)
100 -
» i» ' » R»D
1000 2000 3000 4000 5000
CUMULATTVE PRODUCTION IN R1CION X
(ouaen of fiat fold)
CEFD = Total cost of producing 5,000 oz. if all gold is produced at
average cost.
CITHD = Total cost of producing 5,000 oz. based on industry supply curve
CEFD = CITHD.
CITHD is derived by subtracting ETI and adding THF to CEFD.
CEFD - ETI + HTF = CITHD = CEFD
B-l
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