Article by Steve Voynick
Mining history – December 1994 – Colorado Central Magazine
If there was a single date that marked the transition between the rise and fall of Climax, it was January 1, 1958. On that date, the Climax Molybdenum Company merged with the American Metals Company, becoming a division of American Metals Climax, Inc.
Financial analysts called the merger a “natural.” The American Metals Company held large international interests in base and precious metal smelting, production, exploration, and marketing; the Climax Molybdenum Company, synonymous with state-of-the-art molybdenum metallurgy, supplied three-quarters of the world’s molybdenum, owned huge ore reserves, and was enormously profitable. Climax profits, about $15 million per year, would enable American Metals to expand and diversify.
American Metals shareholders overwhelmingly approved the merger 38-1; Climax shareholders, voting 4-1, were less enthusiastic.
At Climax, younger employees were indifferent to the merger. But most old-timers, noting that “Climax” came last in the new company name, were against it. “Climax got where it is by itself,” they countered, “and it doesn’t need any help now.”
The first serious Climax labor problems arose just months after the merger. Many believed they were intended to “test the will” of American Metals Climax. In 1958, the Climax Molybdenum Workers Union Local 24410 (AFL-CIO), asked for a hefty twenty-three percent base wage increase. Climax refused, noting that it was the last major western mine still operating on a five-day week during a major economic recession. The union dropped its request to thirteen percent, but Climax, sitting comfortably on a big molybdenum stockpile, again refused. In July, the union voted to strike.
The unpopular strike lasted until October; Lake County lost tax revenues, Leadville merchants lost business, Climax lost production and profits. Union members who could afford to sit out the strike gained only modest wage and benefit increases.
That first strike revealed Leadville’s growing dependency on Climax. When Leadville’s base metal mines, mills, and smelters closed in the 1950s, the effects went almost unnoticed. The hundreds of laid-off men drove right “up the hill” to Climax to be immediately rehired, many on special age and health waivers. At that point, Leadville had quietly, painlessly, and completely shifted its economic base from its historic mining district to Climax.
But Climax was about to exert even greater impact on Leadville. In 1958, Climax purchased a large subdivision adjacent to Leadville, named it West Park, and hired a large construction company to build and sell 500 new homes to Climax employees.
Meanwhile, the Climax company town, fresh off a $10 million expansion program, had 1,600 residents, a new church, and a modern elementary school. With its low rental rates, Climax had never made a penny on its town. And now, with full municipal and protection services and increased recreation and education expenses, the town was costing Climax about $1 million per year.
More importantly, the company town sat squarely in the way of mill and mine expansion. There were few choices for relocation: the original site of Dillon would soon be covered by a new reservoir; Kokomo, with only a bar and a restaurant left, would eventually be buried by Climax tailings ponds. The only real alternative was Leadville, with its West Park subdivision and existing infrastructure capable of absorbing 1,600 new residents.
In February, 1960, Climax sold its town to a construction company. Six months later, the Climax houses, already resold, were rolling down Colorado 91 on low-boy trucks. In 1962, the Max Schott School held its final classes. With the town out of the way, attention turned to rapid development of the new 600 and Ceresco production levels and mill expansion.
Following the 1958 strike, the old Climax Molybdenum Workers Union reemerged as Local 2-24410 of the Oil, Chemical, and Atomic Workers Union. Dissatisfied with everything from basic wages to arbitration procedures, the union, along with Local 1823 of the International Brotherhood of Electrical Workers, voted to strike on July 18, 1962.
That strike devastated Leadville, now the home of 1,600 of the 2,000 Climax employees. Lake County school enrollment dropped eighteen percent, at least ten businesses went broke, and poaching increased sharply.
To prevent a winter mill “freeze-up,” 400 management employees resumed production in late October. In November, the National Labor Relations Board stepped in, citing both the disastrous economic effect on Leadville and urgent defense demands for molybdenum due to the Cuban missile crisis.
The bitter strike finally ended in January, 1963. The original union strike vote was 1100-165; the ratification vote ending the strike was 668-65, the difference reflecting the number of union members who couldn’t hold out. The divisiveness created by the six-month-long strike lingered, and union-management relations were never the same.
The 1962 strike pointed out Leadville’s now-total reliance on Climax. The Denver Research Institute described Leadville’s extraordinarily narrow economic base — a single mine in a single industry — as “precarious,” recommending immediate diversification into tourism and light manufacturing. But Leadville wasn’t buying; wherever Climax was going in the future, Leadville was going with it.
When American Metals Climax wanted more molybdenum than the mine could produce, Climax spent $2 million researching the feasibility of recovering molybdenum from the unused oxide ores. Although the complicated process was technologically risky, Climax constructed a huge “moly oxide” recovery plant. In 1966, the new plant boosted annual molybdenum production to a record 56 million pounds and annual net earnings of the Climax Mine to $65 million.
But the moly oxide plant, plagued with serious health and environmental problems and cost overruns, interfered with the milling of the primary sulfide ores. After only two years of operation, the $20 million dollar plant was shut down and dismantled. Although a full writedown averted financial disaster, the first calculated Climax risk had gone wrong.
By 1970, American Metals Climax had formally adopted its corporate acronym — AMAX. When asked to define the basic elements of AMAX, board chairman Ian MacGregor replied, “people, ore reserves in the ground, and money.” MacGregor vowed to make AMAX “the world’s largest integrated and diversified natural resources and industrial materials company.”
MacGregor found all three of his basic elements at Climax — 2,100 employees, 400 million tons of ore reserves that could last forty years, and annual mine profits nearing $75 million. With the Climax Mine as the cash cow accounting for 40 percent of total corporate earnings, AMAX undertook an ambitious $2 billion expansion program into coal, nickel, aluminum, and even forest products.
Climax industrial artist Ted Mullings drew a popular, albeit unauthorized, cartoon depicting how Climax appeared to the AMAX executives in their new Greenwich, Connecticut, headquarters. Mullings sketched a big faucet protruding from Bartlett Mountain from which poured a torrent of paper currency. The meaning, of course, was that whenever AMAX wanted more money, it just ordered Climax to open the valve a little more.
Climax now supplied only forty percent of the world molybdenum market, thanks to increased demand and the growing by-product molybdenum recovery of copper mines. Nevertheless, the original Climax business plan for the 1970s was sound. Climax would do its best to match production with projected growing consumption, while continuing to hold prices low to discourage competition and retain the greatest possible market share.
After the moly oxide plant failed, Climax could have paused for a realistic assessment of its future, as it certainly would have in pre-merger times. After all, operating costs were increasing rapidly, and compliance with a host of new environmental regulations at a fifty-year-old mine with eight square miles of tailings ponds wasn’t going to be cheap.
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But AMAX always wanted more molybdenum to generate more cash, this time to develop its $500 million Henderson molybdenum mine near Idaho Springs. Where the molybdenum would come from was uncertain, for the Phillipson and Ceresco Levels were about exhausted. In 1970, Climax engineers studied the feasibility of an open-pit operation, submitting a methodical, three-year development plan. But without three years to wait, AMAX ordered the plan modified. Climax engineers somehow complied, bringing the “panic pit” on line in just sixteen months. To meet the rigid AMAX production demands, the “panic pit” did not access an orderly sequence of ores, but took the highest grades first to maximize short-term molybdenum recovery.
In 1976, the open pit helped Climax recover 61 million pounds of molybdenum worth $200 million, an all-time record. It was just enough to cover the annual interest burden on AMAX’s billion-dollar expansion debt.
With the highest grade ores gone in both the underground and the open pit, increased tonnage was the only way to recover more molybdenum. More tonnage meant more people. Climax employment jumped from 1,850 in 1972 to 2,650 in 1976. To gain that net increase of 800 people, Climax had interviewed, evaluated, examined, tested, hired, and trained 3,500 applicants, half of whom never lasted one month.
By 1979, Climax employed 3,000 people, many of whom had nothing to do with mining and milling molybdenum ore. Hundreds worked in administration, training and safety, labor relations, and environmental reclamation, or dealt with the twenty different state and federal agencies that now directly affected operations.
As operating costs skyrocketed, operating efficiency plummeted, due to such factors as safety problems (five fatal accidents in 1979 alone) and excessive filing of union grievances. The average age and experience level of employees hit an all-time low; many, aware of the lenient “three hires and three fires” policy, were at Climax simply for a free ride.
Leadville, now home to 1,800 Climax employees, was booming. The average Climax worker earned $21,000 per year, giving Lake County the highest per-capita income of all rural Colorado counties. Climax accounted for 86 percent of the county tax base, annually paying $2.7 million alone just to the Lake County School District.
But disaster — for both Climax and Leadville — was approaching, for increasing molybdenum prices had upset the traditional market stability that Climax had maintained for decades. The trouble began when the 1973-74 energy crisis spurred a world-wide drilling race and strong demand for high-molybdenum oil field steels. At the same time, the federal government curtailed molybdenum supply by terminating sales from its Korean war-era stockpile. Within eighteen months, the price of molybdenum rose from $1.70 to $3.80 per pound.
This presented an interesting corporate dilemma. While higher prices would encourage competition, they would also dramatically increase the short-term cash flow from the cash cow-Climax. Always strapped for cash, AMAX made a fatal mistake by not attempting to hold the price on molybdenum.
By 1977, when molybdenum hit $5.00 per pound, every copper mining company from British Columbia to Chile was operating or building by-product molybdenum recovery mill circuits. The booming Japanese steel industry, suddenly uncomfortable with the usual long-term molybdenum contracts, created its own short-term, spot market where molybdenum prices soon reached $10 per pound. That convinced steel makers to begin seeking cheaper alternative alloying metals, such as vanadium.
In 1978, as several new primary molybdenum mines came on line, metal market analysts warned that the molybdenum industry was headed for severe overproduction. But AMAX, the leading bellwether of the molybdenum market, pushed ahead with higher production. And if AMAX was confident enough to go full throttle, then so would the competition.
In 1979, two other remarkably timed events masked the developing oversupply situation. A prolonged strike at a Canadian mine curtailed supply, driving the Japanese spot
market prices to $28 per pound. Meanwhile, the Iranian revolution created another energy crisis with subsequent strong demand for high-molybdenum oil field steel.
In December, 1980, the first signs of real trouble appeared when Climax unexpectedly terminated its eight-year-long mass hiring program. By April, 1981, attrition had reduced employment to 2,800.
But the market was now hopelessly out of control. Third World copper mines, enjoying cheap labor and World Bank subsidization, dumped huge amounts of by-product molybdenum on the world market. Meanwhile, the soaring oil prices collapsed, suddenly killing demand for high-molybdenum oil field steel. Even worse was a growing national economic recession. As automotive and general manufacturing slowed, the steel industry laid off thousands of workers.
For AMAX, it was the worst possible scenario: With industry-wide overproduction contributing to already huge stockpiles, the molybdenum market collapsed.
Climax cut its first 600 employees on December 14, 1981, a week before Christmas, then suspended production entirely late in 1982. After that, Climax operated only sporadically at fractional production levels. Ironically, in a belated search for efficiency, Climax learned it could produce at seventy-five percent of capacity with as few as 500 employees.
When Climax went down, Leadville went with it. In just eighteen months, Lake County’s population fell from 13,500 to 8,500. School enrollment and faculty were cut in half; accounts at the Commercial Bank of Leadville dropped from 10,000 to 4,000. Residential “For Sale” signs went up by the hundreds, with $60,000 homes going begging for $30,000. Lake County High School which, in the Climax days, sent almost half of its graduating seniors on to four-year colleges, suddenly had one of the highest dropout rates among all rural Colorado counties.
Dead, too, were the grand AMAX expansion plans. AMAX divested itself of many interests, retaining only gold, coal, aluminum, and, now least important of all, molybdenum, as its core businesses. AMAX would have gladly divested itself of molybdenum, if it could have found a buyer.
Unlike Climax, Leadville survived, not so much by transition or renewal, but by adjusting to a lower economic level. In 1980, 2,000 out-of-county residents commuted to jobs in Lake County. Today, 1,700 county residents — half the entire Lake County work force — commute to out-of-county resort industry jobs, many paying not much above minimum wage.
What to do with Climax remains a big headache. High start-up costs and the difficulty of retaining experienced personnel rule out periodic shutdowns. Even when the mine is completely shut down, “holding” costs don’t go away. The bill for basic administration, maintenance, security, environmental responsibilities, and property taxes on 11,320 acres amounts to nearly $20 million per year.
In 1993, Climax was an obscure pawn in another merger, this time when Cyprus Minerals swallowed AMAX. Today, Climax is a ghost mine — a monument to yesterday’s grand American epic that is best defined by numbers.
During its lifetime, some 65,000 people passed through Climax, sharing a cumulative $1 billion payroll. Climax mined and milled a half-billion tons of molybdenite over recovering 946,000 tons of contained molybdenum metal with a cumulative year-produced value of $4 billion — one of the world’s highest single-mine production figures.
But today those numbers are just that — numbers. Climax is now only a mothballed mill, a huge Glory Hole in the side of Bartlett Mountain, ten square miles of tailings ponds, and a lot of memories for a lot of people. When old Climax hands get together to “remember when” and argue about the “what ifs,” they’ll always agree on one point: Climax was one hell of a ride while it lasted.
This article, and last month’s account of the rise of the Climax Mine, are condensed from Steve Voynick’s 400-page book Climax, which will be published next fall by Mountain Press of Missoula, Mont.
