When 28-year-old John Gates was growing up in Sutter Creek, California, a town of 2,500 people with a charming Old West façade in the heart of the Sierra Nevada foothills, the biggest thing going on was the rivalry between high-school soccer teams. Along with senior-year team-captain duties, Gates, whose athletic build, sandy hair, and pale-blue eyes suggest a J. Crew model, expended his energy and enthusiasm on camping, canoeing, and rock-climbing trips. After he graduated from the University of Nevada, Reno, with a major in mining engineering, friends expected him to exploit the opportunity for adventure and pursue mining jobs in Australia. But Gates stayed put, and as he walks through a set of 12-by-15-foot steel gates into a portal carved directly into the Sierra hillside, he couldn't be more excited. Into a 2,800-foot-long slope of a hill, a labyrinth of dark, damp tunnels is being built, where miners are blasting, digging, and drilling toward several recently discovered virgin veins of that most coveted metal: gold.
"The legacy of the forty-niners, the stories of gold fever—something about gold draws people to it," says Gates, who is helping to oversee the Sutter Gold Mining company's $40 million project to mine the untapped stores of the historic Mother Lode region. "The value of what you're pulling from the ground is just mind-boggling. We're looking at $39 million a year from a tiny hole in the earth."
During the century after 1848, when James Marshall, a carpenter from New Jersey, found several small nuggets in the American River, spawning the California gold rush, the riverbeds and hills of this Northern California region were hacked apart in hopes of discovering the Mother Lode—a name since bestowed on the collection of a thousand-plus mines in this area. But for most of the free-spirited prospectors who flocked to this region around the newly minted town of Sutter Creek, the big payoff never panned out—gold production proved to be slow, expensive, and dangerous. As other industries took center stage in the 20th century, gold mining dwindled. In 1958, the last mine in Amador County was shuttered. In the decades that followed, the only subterranean activity has involved tourists on gold-mining tours and the occasional spelunkers.
But a funny thing happened to gold on the way to irrelevance. In 2007, the financial markets imploded, and the rest of the U.S. economy soon followed. The price of just about every investment—stocks, futures, homes, your Ferrari 458 Italia—went down the toilet. But gold just kept shining ever brighter. The worse the economy got, the higher the price climbed. Sutter Gold, which formed in Canada in 2004, had bought the rights to 551 acres in Amador County, which included the site of the historic Lincoln mine, and began aggressively soliciting investors. In 2008, a South African company called RMB bought in, soon providing the cash infusion Sutter needed to recommence mining, and in December 2012, gold production returned to the largest contiguous chunk of the Mother Lode.
Now everyone wants in on the action: commercial miners like Gates, cutting-edge investment boutiques, and digging-in-the-dirt prospectors. Last year, the United States Geological Survey stated that more than 72 million pounds of unmined gold exist in this country, primarily in Alaska, California, and Nevada. Reborn amid economic adversity, gold mining is on a trajectory that rivals that of the tech industry. Welcome to the 21st-century gold rush.
The Sutter company has a head start, thanks to its mineral rights in Mother Lode territory. The most recent surveys done by the company's geologists and engineers reveal its astounding potential: Sutter is sitting on an estimated 681,958 ounces of gold. At roughly $1,700 an ounce, that would represent gross return of over $1 billion. The company's CEO, Leanne Baker, a former managing director at Salomon Smith Barney in San Francisco, estimates the annual production for the next five years will be around 23,000 ounces, or about $39 million in today's market. "It's hard not to be bullish on gold," she says. A quick look at recent history shows why: In 2002, an ounce of gold traded at just $310, about a fifth of its value today, according to Suki Cooper, a precious-metals analyst for Barclays in New York City.
For Gates, the company's discovery is an opportunity to build a lucrative career at a time when his home state is facing unemployment numbers slightly above 10 percent. "I was always fascinated by rocks, and thought for a while about going into geology, but as a high-school student, I heard a speech from a professor at the University of Nevada who really turned me on to mining," he says. "The opportunity to build something and see things no one has seen
before . . . When I got my mining degree, I thought, 'How cool would it be to reopen these old mines in my back yard?' And now it is happening."
CAN YOU DIG IT? Clockwise from top left: John Gates at an entrance to Lincoln mine, 1,200 feet above sea level; Dave McCracken (at bottom left) mining in the silt of California's Salmon River; molten gold being poured at the Nolan Watson–backed Santa Elena Mine in Sonora, Mexico.
Gates handles everything from 3-D mine modeling to surveying, obtaining permits, and helping to manage the underground crew of contract miners. "You get paid good money to go down a hole," he says. Top mining engineers earn as much as $150,000 a year. And Gates' deal is sweetened with generous stock options. If he wanted to, he says, he could make a lot more. "It's all about what's important to you—the opportunity is out there for the taking," he says. "I have a buddy who graduated a year after me and is making nearly twice what I make. He has more toys than he can pack into his new Corvette. But he's mining out in the middle of nowhere in eastern Nevada. It all depends on how far from civilization you are willing to go to get the big money."
"Gold will be money when the dollar and the euro and the yuan and the ringgit are mere memories."—Richard Russell, the Dow Theory Letters
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Nolan Watson, a fresh-faced 33-year-old from British Columbia, is willing to go anywhere in the world to make his fortune in gold. He's on the road nearly 150 days a year, traveling from the deserts of Nevada and New Mexico to the mountains of Peru. He manages the outposts from his office high in the sky in downtown Vancouver, where his two- and three-year-old companies, Sandstorm Metals & Energy Ltd. and Sandstorm Gold Ltd., respectively, have headquarters. Decorated in modern minimalist style—glass dividers, an open floor plan, and a natural-stone motif—the office looks like that of a high-end architecture firm, and Watson fits right in with his well-tailored suits (which, according to colleagues, he wears even on weekends). Watson is at the forefront of the mining business—he mastered an innovative, and high-risk, financial game known as "gold streaming," a way for Wall Street firms to invest in gold via buying stock in Sandstorm, which funds mining companies in exchange for an agreed-on percentage of all gold ever found in the mine at a fixed price. While it has the potential to generate billions, getting the metrics right is complex work, and partnering with the wrong mine company could cost Watson millions. "Why doesn't everyone do this? Because it takes really skilled, really knowledgeable people to be able to walk into these mines and correctly assess the opportunity there for the gold-streaming companies," says Craig West, a precious-metals analyst for GMP Securities in Toronto. "That is the key, and that's what companies like Sandstorm do really well." But the risk is part of the appeal. "It's a rush," Watson says. With so much at stake, the vetting process of potential mine partners is intense. "We just closed on a $75 million deal with a new mine. We look at about 300 mines a year, but we'll end up working with only two or three of them."
As a 21-year-old graduate of the University of British Columbia, Watson began working as a corporate financial adviser at Deloitte in Vancouver, then quickly parlayed that into a managerial job at a mining-company start-up, Silver Wheaton, also in Vancouver. The company took off, and in 2006, Watson became, at 26, the youngest CFO of any company listed on the New York Stock Exchange. During his four years at Silver Wheaton, he raised more than $1 billion to finance deals before deciding, at the height of the recession in 2008, to go solo and launch Sandstorm. Watson recalls waking up in a different city every day of the week for six straight weeks during the initial phase of capital raising, going from investor to investor, trying to persuade them to take a chance on his start-up. "Work ethic is everything. I said, 'We're not coming home until we have the money,'" he says. The unrelenting drive this required didn't come naturally, though. "When I was a kid, I gave up on things pretty quickly," he says. But he soon learned that success was more about a refusal to quit than any God-given talent. "That's when I went from being complacent to being hyper-focused on accomplishing audacious goals. Even in sports, I went from being a below-average player to captain of my hockey and basketball teams." Hundred-hour workweeks and nonstop travel can put a real damper on team sports. "Today it's more about the hotel gyms," he says.
Sandstorm Gold now closes more gold-streaming deals than any other company in the world. "We started with a $4 million market cap, and in October we hit $1 billion," Watson says. "That's just the start. I think we can grow Sandstorm Gold to a $15-to-$20 billion market-cap range, and Sandstorm Metals & Energy to maybe $50 billion." Such bravado—with the bucks to back it—caught the eye of Mad Money's Jim Cramer, who had Watson on the CNBC show this past October, throwing his weight behind the company with one big booyah. "I've seen one analyst who thinks Sandstorm can grow production by an astounding 228 percent from last year through 2015," Cramer had previously told his audience. "You can see why this stock is so compelling. I am always looking for a lower-risk way to play gold with a lot of upside."
As Watson's mushrooming net worth attests, gold "really is the gift that keeps on giving," he says. "People are always going to want gold. And as long as the government keeps printing money, prices will keep going up." As for whether he himself has prospected, Watson shakes his head and laughs. "You know, I really don't think I'd be much good at it."
"A chunk, where the pick had laid open the heart of the gold, glittered like a handful of yellow jewels, and he cocked his head at it and slowly turned it around and over to observe the rich play of the light upon it."—Jack London, "All Gold Canyon"
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For Dave McCracken, reaping financial rewards from gold is less compelling than the hunt—the all-consuming quest to find treasure. "Once you're hooked, you can't resist it," says McCracken, a 59-year-old former Navy SEAL. Call him the Indiana Jones of gold prospectors—McCracken has been hired by the Cambodian government, Venezuelan mining companies, American investors, wealthy individuals, and a host of unsavory characters he declines to name to search out the world's most lucrative gold deposits. His work has taken him to Sumatra, the Philippines, Madagascar, and Borneo. McCracken specializes in underwater mining, deploying suction dredges on riverbeds and stream bottoms, sucking up and separating materials. He has watched gold enthusiasts pour into the trade as the price continues to rise—the Gold Prospectors Association of America says its paid membership has risen 83 percent since 2008, to about 45,000 in 2012, and local chapters have grown by more than 50 percent in the past year. There would be more, and more success, if not for environmental codes, says McCracken, who has a bone to pick with California's increasingly strict regulations limiting the ability of individual prospectors to hunt for gold. "They're infringing on my rights of free enterprise," he says. Not that that's going to stop him anytime soon. "What can I say? I'm good at finding gold."
Robert Sulatycky, a onetime executive chef for the Four Seasons in Chicago and the Beverly Hills Hotel, runs Vin Privée, a wine-stocking company for the private cellars of wealthy individuals around the country, and bottles his own label, Robert Allen, in Oakville, California. At 49, Sulatycky has made enough money to retire many times over. So for him the pursuit of gold is not about money. When he was a teen growing up in western Canada, his parents signed him up for a class on how to pan. Sulatycky spent hours with buddies sifting through layers of riverbed silt to find hidden riches. "I was just blown away," he recalls. The flakes that he found he tucked away in his pocket—and then he quickly moved on to the next spot.
Although independent prospectors tend to be secretive about their strikes, Sulatycky talks freely about finding nuggets worth thousands of dollars on his last outing in the high desert of San Bernardino County, where he heads each week. He spends several days in advance researching a region's geological charts and historical mining data, studying the known vein systems in the area, then follows the trail of potential hot spots, using a high-end metal detector, picks, brushes, and shovels—often for days at a time. ("The best part about my wine business is that I can do everything on the iPhone," he says.) What an individual gold prospector makes can vary widely, depending on the time he invests, his skills, and, of course, his luck. After nearly three decades of restaurant-industry madness, Sulatycky finds prospecting both soothing and exhilarating. "It takes 100 percent focus," he says, adding that the physical nature of prospecting—lugging his heavy gear up and down mountains, hiking over uneven terrain without respite from sunup to sundown—might surprise beginners. "It is hard work. But anything else you might be stressed about disappears, because looking for gold demands your full attention."
"It is extraordinary how many emotional storms one may weather in safety if one is ballasted with ever so little gold."—William McFee, "Casuals of the Sea"
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James Marshall, the man who found those iconic nuggets, died poor. And for most of the other prospectors who headed west to seek their fortune, frustration and broken dreams lay in wait. One such disillusioned gentleman, Samuel Clemens, gave up and decided to try to make a living from writing, using the pen name Mark Twain. But the 21st-century prospectors, from engineers like Gates to speculators like Watson, have technology on their side. A great deal of science and research is invested in the quest for gold. And yet the romance remains. Sulatycky tries to describe what the forty-niners called gold fever: "You are digging and digging, and then you find a nugget, and you reach down and pull it out of the earth, and you realize you are the first person to ever lay eyes on this gold." Or, as McCracken explains it, "When you uncover that gold and it's yours—you found it—it is impossible to describe the feelings of lust, greed, and exhilaration that go through you. There is a chemical reaction in the body that is more powerful than anything you can imagine. You just have to keep coming back for more."
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