Red Arrow mine owner says he’s done no wrong

Craig Liukko, the embattled president of the Red Arrow Gold Corporation, which allegedly operated a non-permitted mill just outside Mancos, insists he has done nothing wrong.

He says he has been unjustly targeted by state regulators and hopes to eventually resume control of the Red Arrow gold mine northeast of the town in the La Plata Mountains. “My intention is to win this battle we’re in and move forward,” he said in a recent phone interview.

The mine is in receivership and legal claims are being sorted out following a complicated series of developments that included the shutdown last June of the Mancos mill, which reportedly used mercury to extract gold from ore.

Environmental studies found elevated levels of arsenic and mercury at the mill and in the soil nearby. The studies fueled speculation that for several months the wind might have been blowing toxic mercury vapors into the town.

Liukko does not deny that mercury was used to mill gold at the site. “We used over 100 pounds of mercury,” he said. Yet he maintains that he is innocent of any wrongdoing and has been “crucified” by the press.

He contends that the mill was not his, it was not illegal, neither was his use of mercury there, and furthermore none of the mercury was vaporized.

He also says Marcie Jaeger, of the Denver law firm Jaeger Kottmeier Associates, ran the mill for two months and a little over 100 pounds of mercury disappeared on her watch – not his.

Crash course in mining

The 57-year-old Liukko was born and raised in South Florida but developed an interest in Colorado as a child. “As a teenager, well, even younger, my mom and dad used to come out and visit Colorado during the summers. So I fell in love with it when I was young and said I was going to move out there when I got old enough and I did when I was 21.”

Liukko, who described himself as “quite entrepreneurial,” started a woodworking business in 1977 and was introduced to mining in 1980 by a customer he describes as a “an old hard-rock miner.” The miner, who had developed a silver mine in the 1940s near Silverton, sold it to Liukko.

Liukko, along with his father and brother, then formed the Triple L Mining Company and the old miner gave them a two-week crash course in mining. Not long afterward, the soaring price of silver came crashing down. The Liukkos persevered in silver-mining awhile, then switched to gold in 1988. The old miner told them about the Red Arrow mine about nine miles outside of Man cos and they bought it.

The Red Arrow was first developed in 1933, according to published reports. Named for a red arrowhead found at the site, the mine produced 14 pounds of gold from 1933 to 1937, and gained some notoriety when a 5 1/2-half pound nugget was unearthed there.

The mine had its ups and downs but never completely played out. It changed hands several times before it became the property of the Liukko family. They formed the Red Arrow Gold Corporation, with Craig Liukko serving as president and CEO. He became a certified Mine Safety and Health Administration instructor that same year and still takes pride in his safety record: “We’ve been in mining since 1980 and never had a lost time accident.”

Needing capital

In 2006, Liukko sold his woodworking business, put his profits into the mine and borrowed more money from a local bank, he said. The mine began running year-round in 2006 and in 2008 the Colorado Division of Reclamation, Mining and Safety approved a permit amendment nearly doubling its permit size. “Then we started to realize that the project was going to take a large amount of capital to really develop.”

To acquire more capital, Red Arrow entered into a joint-venture agreement with American Patriot Gold. APG, backed by its lender, Maximilian Investors LLC, a private-equity lending group, agreed to put $25 million into the project in return for a 49 percent interest in Red Arrow, according to Liukko, but APG only came up with $3 million.

Currently APG is in a Texas bankruptcy court and Liukko does not want to talk about it. But he summed up all his financial and business problems in one sentence: “We got into a dispute with some business partners and everything went awry.”

Liukko’s dealings with APG led to Red Arrow’s involvement in Rock Energy Resources Inc., a publicly owned company from Houston, Texas.

In December 2011, APG became a subsidiary of Rock Energy when they acquired a 49 percent interest in the mine with its purchase of 100 percent of the stock in APG.

On Feb. 2, 2012, Rock Energy entered into a letter of intent to acquire the remaining 51 percent interest in the assets of Red Arrow. In early 2012 the company’s holdings expanded to a total of approximately 790 acres of fee leases, minerals and land claims.

The Standard and Poor’s website reports that Rock Energy produced monthly updates on mining and related matters. In March 2012, Rock Energy reported, “Yields continuing to exceed one ounce per ton. In addition to gold concentrate, multiple nuggets of up to 1/4 of an inch were recovered during the process. Initial sales of gold bullion products were expected to commence prior to the end of April 2012.”

In an April 12, 2012, interview with the Wall Street Reporter, Rock Energy’s CEO, Rocky Emery, stated, “Craig Liukko and his team very astutely identified the mine as a singular project for revitalization, and spent the better part of five years restoring the mine to fully permitted operating status. The capital that [APG] brought to the table can now be deployed sequentially over the next several years and generate substantial returns for our shareholders.”

The Rock Energy website shows that Liukko took the position of its chief operating officer just before the acquisition of APG stock in November 2011 and his father served on the board of directors. But Liukko vehemently denied that he or his father ever held any position with Rock Energy.

“I never accepted the post of COO,” he said.

However, a Security and Exchange Commission public document lists Liukko as the COO. The SEC document outlines events for 2012. It says he failed to fulfill a loan agreement and defaulted on a forbearance on Oct. 1, 2012. It states that Liukko and his father were terminated from their positions in December 2012. Under the heading “Diversion of Red Arrow Mine Proceeds” it states: “Registrant [Rock Energy] obtained information that during October and November, 2012, its joint venture partner, the Red Arrow Gold Corporation, under the control of Registrant’s Chief Operating Officer, Craig Liukko, sold gold minerals and received Red Arrow Mine Proceeds of approximately $90,000 which they did not deposit into the Lender’s Blocked Account as required by the Loan Documents.”

Lawsuit dropped

On the day of Liukko’s reported termination, Dec. 26, 2012, Rock Energy’s subsidiary, APG, filed a lawsuit against Liukko and his father. The complaint charged that Liukko had deposited more than $90,000 of proceeds from the gold mine directly into accounts controlled by him and/or Red Arrow, in violation of the loan agreement, which said all proceeds were to go into an account controlled by Maximilian.

It also said APG had learned the equipment purchased to mill ore at the mine site had “gone missing and/or been diverted” and that APG “has reason to believe that ‘tailings’ containing high concentrates of precious metals have been diverted from the mine site and transported to another location and not sent to the refiners for processing and sale” and said these actions were “believed to be undertaken by Craig Liukko.”

The complaint sought, among other things, nearly $3 million in damages from Liukko as well as a restraining order forbidding him from entering the mine or interfering with its operations.

However, APG dropped the suit on Feb. 20, 2013, saying the parties were involved in preliminary settlement discussions.

Asked why it was dropped, Liukko replied, “Well, that’s some of the things I really can’t talk about, but that’s a good question, I can tell you that.”

$2,000 remaining

On April 11, 2013, as a consequence of a suit brought against Red Arrow by Maximilian, District Judge Todd Plewe ordered the Red Arrow Gold Corporation placed in receivership. That meant its property and assets became the custodial responsibility of a receiver until the legal matters are settled. Marcie Jaeger of Jaeger Kottmeier Associates became the receiver.

According to a report in the Denver Post, Jaeger discovered that only $2,043 remained in Red Arrow’s bank account. On April 17, 2013, she went to a building on Main Street in Mancos, owned by Liukko, searching for any property belonging to the corporation. She did not find any property but did learn from the tenants, who were leasing the building from Liukko, that he was storing equipment about a mile away in buildings at 600 Grand Avenue leased from Mancos resident Boyd Sanders.

Jaeger saw two concrete-block buildings at the address with mining equipment and mine tailings stored on the grounds. Inside she reportedly found Liukko’s son at work. She allowed him to finish his work and shut down the equipment. The son and Jaeger then created an inventory of the contents of the buildings and a locksmith changed the locks on the doors.

In the process, Jaeger saw possible violations of state mining regulations and notified the Colorado Department of Natural Resource’s Division of Reclamation, Mining and Safety (DRMS).

On June 18, 2013, state regulators issued a cease-and-desist order because one of the buildings apparently housed a gold mill using a mercury-amalgamation system. The mill was operating without a permit. According to reports by the DRMS and the U.S. Environmental Protection Agency, equipment and tailings at the mill contained elevated levels of mercury and arsenic. Mercury was also found in the soil near the site.

Mercury amalgamation is a method used to extract gold from ore material. One building at the Mancos mill housed a machine called a ball mill used to crush the ore. It consists of a rotating drum containing softball- sized metal balls that are tossed about like socks in a clothes dryer. The metal balls pulverize the ore, then mercury is added and the mercury becomes infused with gold molecules from the ore.

The mercury-laced ore was apparently then loaded into the drying kiln, where the mercury was vaporized by heat, leaving the gold behind. An inverted galvanized steel washtub, connected to metal ducts leading to a scrubber, was apparently used to catch the rising mercury vapors.

At a Sept. 30, 2013, meeting of the Montezuma County Commissioners, one repre sentative of the DRMS described the milling process as “how Third World countries do it.” Small-scale gold-mining in the developing world is, in fact, a major source of atmospheric mercury.

The greatest concern for Mancos residents in that mercury vapors may have escaped from the building and been carried into the town.

The World Health Organization reports that the inhalation of mercury vapor can harm the nervous, digestive and immune systems, lungs and kidneys, and may be fatal.

Steve Renner, senior project manager with the DRMS, said he has worked with the state agency for 30 years and has never seen mercury used in this way before.

“There’s various techniques [for extracting gold from ore],” he said. “In Nevada the use of cyanide is actually pretty prevalent. There’s all kind of separation technologies but mercury is something that I don’t think has been used on any sort of commercial scale for many, many decades.”

Treated unfairly?

Liukko sees things differently. He insists that he is a victim of a conspiracy involving Jaeger Kottmeier Associates, Maximilian Investments, and the state of Colorado. “It’s kind of became a collective witch hunt, it seems to me, with the two companies involved and the state assisting them,” he said.

Liukko sees Colorado as hostile to mining companies. “I think that there’s a strong anti-mining posture in the state, for sure. So I think that’s probably one of the biggest reasons why they are so hard against us.”

He also believes he has been treated unfairly by the press. “My reputation has been smeared and defamed every which way possible.”

Liukko said he never owned the mill or the equipment, or even leased the building. “We never did own the mill, that was APG’s mill,” he said. “They were paying us for the labor and they purchased the equipment, including the amalgamation equipment.” He added, “They’re the ones that leased the Boyd Sanders property.”

He said he was treated unfairly by the courts and the receiver: “We didn’t even have an opportunity for a hearing. They just showed up at our door one day when we were in the process of de-commissioning the test site and turning it back over to Mr. Sanders because they quit paying the rent.” Liukko maintains that the mill was not actually a mill but a “test site.”

“This was nothing more than a very small pilot mill,” he said. “We were going to build a mill at the mine and so we started with doing testing of different pieces of equipment down in Mancos. It was nothing more than a small-scale pilot mill with a view to build a mill up at the mine.”

He said none of the mercury was vaporized; all of it was recycled. “It’s was a fully enclosed system. None of the mercury was put into the environment at all.”

The dangers of mercury and arsenic were overblown, according to Liukko. “Arsenic is prevalent in the La Plata Mountains. So they [DRMS] distorted the arsenic levels to look like there was contamination. Then they recanted on that and said it wasn’t harmful because it was in its natural state, but they did that long after they already had crucified us in the paper.”

As for mercury, Liukko said if it’s safely handled and contained it poses no threat. “Mercury is in everybody’s house now with these little curlicue light bulbs,” he noted, referring to compact fluorescent bulbs.

What happened to the 100-plus pounds of mercury used at the mill? Liukko said he doesn’t know.

“She [Jaeger] had my son actually operate – ordered him to operate the amalgamator,” he said. “The receiver came in and took over the operation of the mill and mine, operated the mercury amalgamation system, and then called the state two months after she was operating the mine and mill. Then she wanted them to take samples. And we don’t know what the receiver did with the mercury.”

As for the gold Jaeger allegedly produced, he said, “We don’t know what happened to that gold.”

He said he received electric bills after she took over that “were higher than when we were operating in there” and that Sanders “kept getting called about the lights being on in the building at night. So we don’t know what happened. We’d like to see an investigation done.”

Lights and heat reportedly did run in the buildings for the duration of the receivership, presumably to maintain the equipment and deter theft.

Jaeger declined to comment on Liukko’s accusations. However, she stated in an email: “I never ran the mill, and the entire operation was closed during the two months in question. I stand by the facts and findings as I reported to the court.”

Liukko said he will continue his fight to clear his name and retain the mine. He said he has no fear of arrest. “I don’t see how there can be any criminal charges. I haven’t done anything criminally.”

He insisted that he still owns the mine, although Jaeger Kottmeier turned over all of Red Arrow’s assets to the custody of a Texas bankruptcy court on Dec. 17, 2013. Not long after that, an Australian company said it had obtained $4.5 million in financing to purchase Red Arrow’s gold and silver claims, but in January the deal fell apart.

Liukko recently returned from a trip to Texas with his fighting sprit intact. He said that he will be filing lawsuits but won’t say who they will involve. “I could write a book on this whole thing one day,” he laughed.

Waiting and watching

Meanwhile, Lyn Patrick, a naturopathic doctor and Mancos resident, said a local watchdog group called the Mancos Environmental Action Group is keeping a close eye on developments. One of the group’s greatest concerns is cleaning up the mill site, and a bond hearing currently under way in Denver could free up money to do that.

“What they’re trying to do is determine a responsible party and deal with the receivership issues to release the bond and then tie the mill to the mine so that the bond is available to pay for the mill reclamation costs,” she said. “That’s what we really, really hope happens, because without that nobody is going to want to pay for this clean-up and it’s just going to sit there.”

Patrick has been in touch with the EPA and asked them about mercury vapors. “What they have told us is that they initially could not assess whether there was mercury- vapor dissemination further than the soil deposition where they found it – in the yard directly east of Boyd Sanders’ property. They said there was no way to assess that, if there was high wind velocity, whether or not that mercury vapor would have been carried further than where it was deposited directly in the soil. So there’s no evidence that it was – and there’s no evidence that it wasn’t. Unfortunately, we can’t go back in time and do air monitoring because nobody knew that facility was in existence.”

Patrick said her group is waiting on a report being co-written by the state health department and the Agency for Toxic Substances and Disease Registry, a sub-agency of the national Centers for Disease Control.

“They have the task to co-write a potential health risk and evaluation report, which will basically tell us if there is any need to do health evaluation of the community, how we would go about doing that and who would be tasked with doing that.”