Welcome to the new gold rush

By Rupert Steiner for the Daily Mail
Updated: 06:18 EDT, 1 February 2011

Australia is seeing another gold rush, and modern operations are finding deposits well beyond the reach of early diggers. Rupert Steiner reports from Down Under.

Striking it rich: Gold spot prices rose 28% to $1,413 an ounce in 2010

The network of cavernous tunnels has all the characteristics of a villain's lair from a James Bond movie.

A mile beneath the small town of Bendigo, Southern Australia, a fleet of 80-tonne dumper trucks thunder around interconnecting passages.

Bright gleaming lights pepper the blankness - lanterns fixed to the helmets of a small army of workers - some clutching sticks of dynamite.

Each low grumble blasts its way deeper and deeper into the petrified matter.

Forget Diamonds Are Forever - this is the world of Goldfinger.

The sprawling underground bunker two hours north of Melbourne is called Fosterville, the biggest gold mine in the state of Victoria.

More than 150 years after the first discovery of the metal sparked a digging frenzy, prospectors are once again striking it rich with a very modern gold rush in Bendigo. Victoria once produced 40% of the world's gold.

The weakening US dollar and pound has made the precious metal a sought-after hedge against currency losses. It is a rare safe haven asset at a time when Britain's 'recovering' economy looks increasingly parlous.

The numbers speak for themselves. On the last day of trade for 2010, gold spot prices hit $1,413 an ounce - a 28% surge on the year and the 10th consecutive annual gain. During 2010 gold has averaged $1,227 per ounce reaching a $1,426 peak last month (December).

One analyst said: 'Retail investor demand for gold has been quite resilient given the environment of heightened macroeconomic uncertainty, as investors bought gold to diversify their portfolios and hedge against inflation risks.'

The potential for gold was not lost on Canadian mining giant Northgate, which bought the Fosterville gold mine in February 2008. It is one of a number of foreign firms to have invested in Victoria, which is drawing a growing band of skilled migrants from Europe and America.

The antiquated practice of panning for nuggets, a favourite of Westerns and 'gold rush' movies, is obviously long gone.

Better equipment and sophisticated geological mapping have enabled modern mining companies to find gold deposits that were well beyond the reach of 19th century gold diggers.

The round-the-clock operation at Fosterville is vast. Access to the mine is by a dirt road that disappears deep into a dark five-metre hole gouged out of a rust-coloured rock face.

The shaft winds down like a giant corkscrew and we follow a series of low-profile underground loaders that peel off into various spur tunnels along the way.

After half an hour of twisting closer to the earth's core we step out of the four-wheeled drive into a darkness rarely experienced above ground.

The floor is covered by an inch of surface water that has percolated its way down, and the beams spilling from our lamps illuminate a tunnel that seems to have no end.

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We have struck gold.

There are no chunky nuggets, or rich yellow veins. The precious metal is all about us, like tiny flecks of sand in the rock. The laborious process of extracting the rock begins here.

Miners blast away boulders from the wall of the tunnels. The gold is later separated from the rock on the surface. Huge diggers load the rubble onto low-level trucks, where on the surface the rocks are crushed though various machines until they achieve a consistency like toothpaste.

The next step is a chemical process where the mixture is put in large vats and the gold forms a froth at the top, and unwanted quartz sinks to the bottom. Cyanide is then introduced to dissolve the gold and the precious metal is drawn to electrodes placed into the solution.

The gold is then melted from the electrodes and poured into ingots.

Fosterville blasts out 750,000 tonnes of rubble a year, but there are only 5 grams of gold per tonne which means each truck load of debris contains just three teaspoons of the yellow metal.

The plant produces just seven gold bars a week.

Northgate says Fosterville produced a total of 100,441 ounces of gold in 2010, which was slightly less than the 103,360 ounces produced the previous year.

General manager Ian Holland said: 'Gold is resurgent - there's a new rush. There has certainly been some margin expansion for us.'

The emergence of gold as an alternative investment to equities can already be seen on the streets. The first gold-dispensing ATM was installed at Frankfurt airport in 2009 and has spread to Germany, France and America.

It has made a significant leap from a hole in the ground to the hole in the wall.