Gold from Lead

Along a tunnel 4,850 ft. beneath the Black Hills of South Dakota, explosions rumbled like artillery fire. Sweet-smelling dynamite and ammonium nitrate fumes poured into the tunnel from a cavern where some 30 to 40 tons of ore had just been blasted loose. In an immaculate, cement-lined chamber nearby, a hoist operator scanned two closed-circuit TV screens that monitor the ore buckets, make sure they are dumping properly into large collection bins. Above ground, at the end of the production process, refinery workers were pouring Brick No. 37,035--a 30-lb. hunk of solid gold worth $15,346.45.

The mine is at Lead (rhymes with bleed), S. Dak., and it is the nation's biggest, most consistently profitable pot of gold. Last year its owner, San Francisco's Homestake Mining Co., extracted a record 628,259 oz. of gold bullion, more than one-third of total U.S. production, sold it to the U.S. Treasury for $22 million at a profit of $2,300,000.

Perpetual Squeeze. Homestake has been profiting handsomely from its Lead mine for 88 years despite obstacles that have driven every other major U.S. gold producer out of business. While wage and material costs have risen steadily, the price of gold has been pegged by the Government at $35 per oz. since 1934, creating a perpetual squeeze on profits. For three years during World War II, the Government suspended gold mining, transferred workers to vital war industries. Many owners simply decided not to reopen once the war was over; most of those who did soon went under.

Homestake not only reopened but also prospered by introducing cost-cutting technical innovations. Among them: automated hoisting equipment; TV monitoring and short-wave communications; tungsten carbide bits, used to drill holes for explosives, that last for 450 ft. of drilling v. 16 in. for the old steel bits, and have doubled each miner's productivity. It takes an average three tons of ore to produce a single ounce of gold, but Homestake literally wrings out every ounce. The company salvages $300,000 worth of gold a year by such thrifty measures as washing workers' clothes and hands, vacuuming refinery walls and periodically cleaning furnace linings.

The Homestake mine was discovered in 1876 by a prospector named Moses Manuel. The following year he sold the claim for $70,000 to a San Francisco syndicate headed by George Hearst, father of Publisher William Randolph Hearst, who was later to use the family's Homestake fortune in building his newspaper empire. Today it is run by Chairman Donald McLaughlin, 74, former head of Harvard's geology department, and by John K. Gustafson, 59, president, chief executive officer--and once one of McLaughlin's students.

Limited Lode. From its beginning, Homestake was the dominant economic, social and cultural force in its area. The town of Deadwood, last resting place of Wild Bill Hickok and Calamity Jane, grew up less than five miles away as an entertainment annex for the miners. Now, with 1,692 workers at Lead (pop. 6,200), Homestake is South Dakota's second largest industrial employer. It has given its workers so many benefits --a free hospital, elaborate recreation center and incentive bonuses--that Homestake employees have roundly rejected unions five times.

Still, no lode is limitless, and though Homestake gold ore reserves are 16 million tons, the company is diversifying. "A mining company that stays with its mine is a liquidating venture," says McLaughlin. In 1953 he moved Homestake into uranium, which has since supplanted gold as the company's leading moneymaker, last year provided $2,500,000 of its $4,950,000 total profit on overall sales of $29.4 million. As with gold, the Government was the sole legal customer and fixed the price; besides, the Administration announced that its need for uranium would be satisfied by 1970. But a new contract with the Atomic Energy Commission allows the company to sell uranium commercially, and nuclear-minded private utilities promise a rich future market. Nevertheless, Homestake is diversifying further, has lately entered partnerships to produce potash (for fertilizer) in Saskatchewan, iron in Australia, lead and zinc in Missouri, and is studying a copper mining investment in Mauritania.

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