Dreams and decline in Kolar gold mine

The Kolar Gold Fields in Karnataka are just a two hour drive from Bangalore and were shut a decade ago when it cost nearly 20,000 rupees (about $430) to produce 10 grams of gold there and the selling price was about 4,500 rupees ($95).

Now, gold has hit record highs of almost $2,000 per ounce -- or around 28,000 rupees per 10 grams on the domestic market -- intensifying the allure of reopening the mines.

"If anyone can get this mine going again, I think I can," says Johnson, who has been mining gold for 40 years from South Africa to Australia. "That's my vision."

India is the world's biggest importer of gold, buying last year a record 958 tonnes. Its 1.2 billion people, legendary lovers of the metal, buy more than 800 tonnes a year. Only about two to three tonnes are produced domestically, mostly at Hutti, which is also in Karnataka and north of Kolar.

Johnson, who only wears gold in the frames of his glasses, thinks the Kolar mines could be profitable again and his company, Kolar Gold, is working with ex-miners to make a bid if the government does put them back on the block.

According to officials in New Delhi, the Supreme Court could decide by next month whether a global tender should go ahead for Bharat Gold Mines Limited (BGML), the state-run firm now in charge of the mines which were nationalised in 1956.

"There has been a lot of flip-flop on the part of the (central) government, which first didn't want to run the mines and then said it wants to and now finally has said again it doesn't want to. The matter is with the Supreme Court," said the official on condition of anonymity as he is not authorised to speak to reporters.

"I think the case is listed for hearing next month in the court of the chief justice."

Johnson has no illusions about India's meandering political and legal timetables.

"We think now it's the most advanced it's been in the process," says Johnson, sipping a lime soda in a Bangalore coffee shop. "I just hope I'm still alive when it's finalised."

HEAT AND HEARTS

The former miners and their families who still live in Kolar Gold Fields -- the town built when British firms ran the mine from 1802 until they were taken over by India's post-independence government -- are desperately hoping Johnson's dream comes true.

In their heyday, the mines were producing about 42 grams of gold per tonne of rock. Workers toiled down shafts up to 3-1/2 kilometres (11,500 feet) deep and in temperatures of up to 60 degrees Celsius (140 degrees Fahrenheit).

"It was so hot some miners died of heatstroke, suffocation. The temperature rose one degree for every 100 feet and you went down 10,000 or 11,000 feet," says Yeshvanth Raj, a former supervisor at the mines.

Raj joined the mine in 1981 after studying at Kolar for a mining engineering diploma. He talks passionately about the possibility that the mining community may be revived.

"It's a very beautiful place and the people are very beautiful in their hearts ... this wasn't just the mining industry, it was a kind of society," he says.

The iron skeletons of abandoned winding gear which dominate the landscape are symbols of the dependency of this community on the pit for survival.

Miners no longer have access to the education the company provided for their children. A hospital which specialised in treating respiratory diseases is an empty shell.

For the families in the town, the mine's closure also meant unemployment and the cessation of basic services. Those lucky enough to get a job commute at least four hours a day to help build the rapidly expanding Bangalore.

"There were huge colonies adjoining the mines. Once the mines were shut, services like sanitation, water supply, drainage ... were all closed," said Thelma Narayan, a health policy analyst at the Centre for Public Health and Equity in Bangalore which studied the impact of closure of the mines.

"So the condition of the people living there was badly affected ... the lives of so many people were put into disarray," she added.

In a village of corrugated shacks with tiny, former miners ask visitors if they are bringing jobs.

"If the mine reopens, we are happy. We will have a good life because we are not going to Bangalore," says P. Natarajan, a 67-year-old former miner. "We are struggling too much."

Natarajan, his leathered face highlighting his white hair and moustache, says he would not return to the mine but his 28-year-old son would, leaving his temporary job in Bangalore.

Sathia Vani runs what passes for the village shop, a small one-room hut which stocks little more than five bottles of disinfectant and plastic-packed spices.

Her husband V. Kumar was once a miner, and when the mine closed, her son Praveen had to give up his studies because the family couldn't afford it. He now works in Bangalore.

"If there was employment here, the men could stay at home and they could be happy," Sathia says.

"I would work in the mine if it reopened. We can't afford sending me to Bangalore," Praveen added. The monthly commute to Bangalore costs about 500 rupees, a sum that eats up most of the pension of an ex-miner.

The miners have also been seeking improved compensation and investment in amenities, but the town is no longer high on the priorities list of the state government and India's tortuous bureaucracy does not help.

"We are almost leading a life of refugees. It's a ghost town without anyone taking responsibility," says G. Jayakumar, who represents the former BGML employees.

GOLD GALLOPS TO THE RESCUE?

With gold prices soaring, the future of Kolar Gold Fields, or KGF, may well be decided by international markets.

"The price of gold has dramatically changed. Technologies have developed ... If you can employ people and revive KGF that is worthwhile," said Rajeev Gowda, member of a government committee looking at options for the town.

If the mine goes to tender, the local miners have first refusal, although it is likely they will have to match the highest offer and will need a partner to help funding. There is a reserve price but it's confidential.

The assets of BGML include about 12,500 acres of land, plant and machinery, as well as a network of five stations and a railway which links to Chennai on the east coast, where trains once brought equipment from Britain and returned with gold.

But it also owes the government between $200-300 million of debts racked up as the mine had to sell gold to New Delhi at a fraction of the production cost.

Potential buyers say the government should waive this debt -- saying it is a miniscule sum in the trillion-dollar economy's budget and an albatross for any acquirer.

"Revival is a costly process and the only creditor is the government," Johnson says.

REVIVING THE SICK

The head office of BGML is a two-storey colonial-style house, where the wall paint is peeling and the lofty ceilings watermarked. A blackboard outside still bears shift timings.

Up a once sweeping, now unswept, staircase is the office of Sampath Kumar, the head of BGML, who sits dwarfed behind his huge green baize desk and piles of dusty papers.

"Our company was declared sick in 1992 ... the cost of gold may have gone up since then, but so has the cost of everything, the cost of living, the cost of materials, the cost of equipment," says Kumar, who also spent years in the mines.

The government itself lacks the technology and expertise to manage these deep mines and both Jayakumar and Kumar say it would be unlikely to make the investments necessary.

However, Kumar would not be drawn on whether the mine could now be profitable.

"You have to wait and see. Below the ground nobody knows what there is. We have prepared the tender documents and in this we have given the assessed gold," he said.

The gold above the ground has always been easier to weigh.

Tipu Sultan, the "Tiger of Mysore" who harried the British in the late 1700s, first noticed Kolar's potential when he was out horse racing with his entourage, according to Raj.

"His closest servant went ahead of him, and Tipu saw gold in the hooves of his horse, and made everyone stop," he said.

These days the surface gold is in huge humps of sandy dust left over from cracking the rocks, which Kumar and Kolar Gold both suggest may contain 20 tonnes of gold.

Johnson says a processing plant to filter out the gold from this dust would cost about $100 million, but the proceeds from findings could top $1 billion.

And then there is the elusive gold deep underground.

Kolar Gold has already started examining the rocks around KGF, where it has rights to explore and hopes to average 10 grams per tonne after finding up to 160.2 grams per tonne in one small sample.

"We believe this is one of the best opportunities for finding new gold deposits," says Johnson.

The company estimates the BGML mines could have up to 10 million ounces -- about 280 tonnes -- of gold to recover in dust, open pit and underground reserves.

That's about a third of India's annual demand, but at current prices would be worth $20 billion.

Kolar Gold is currently valued by the stock market at about $40 million. No wonder its first successes near the mines were celebrated in grand style at Chief Executive Officer Nick Spencer's hotel room in Bangalore.

"Three bottles of Moet later, two of our team missed their flights home," Johnson said.

($1 = 47.265 Rupees)