A tale of three Alaskan mines

Anchorage, Alaska — Alaska is twice the size of Texas, occupies one-fifth of the land mass of the United States, and has a population of 627,000 — roughly one person per square mile — and almost half of us live here in Anchorage.

But mining has a powerful impact on the smaller cities and communities around the state, today as much as in the late 19th century when Juneau, Nome and Fairbanks were brought to life by adventurers with a hunger for gold.

Alaska’s mining industry struggled through the ups and downs of the 1990s with three operating metals mines: the Greens Creek silver mine across the water from Juneau, the Fort Knox gold mine outside Fairbanks, and the Red Dog zinc mine in the northwest Arctic. Greens Creek even had to close for a time because mining had become uneconomical.

For the past few years, though, with metals prices rising like never before, mine development has entered a new, more intense phase.

The first gold was poured triumphantly at a fourth mine, Pogo, in mid-February 2006. Operator Teck Cominco (TEK.SV.B-T, TCKBF-O), in a joint venture with Japan’s Sumitomo, had proved that the permitting process could be completed (fairly) smoothly and a mine could be built (almost) on schedule, providing hope for other mining companies in the state.

At the same time, Coeur d’Alene Mines (CDM-T, CDE-N) was pressing on with construction of its Kensington gold mine near Juneau, despite the suspension of a key permit, and legislators in Juneau were listening to a passionate debate about the pros and cons of building an open-pit, copper-gold mine at Northern Dynasty Minerals’ (NDM-V, NAK-X) Pebble property, in an area where salmon and trout are abundant.

All large mine projects in Alaska require infrastructure to be developed with extreme environmental caution. It’s a perilous path to tread, but it can be done.

Pogo

For Pogo, near Fairbanks, a 79-km all-weather road has been built connecting the mine to the highway. During construction, a temporary ice road was used to transport materials and supplies. Teck also had to build an 80-km power line.

In the summer of 2004, a major forest fire burned dangerously close to the mine site and construction was halted for two weeks as smoke and ash filled the air.

Pogo’s final construction cost was around US$347 million, up considerably from the original estimate of US$284 million owing to higher prices for steel, fuel and contractor wages.

On the other hand, Teck and Sumitomo based their mine plan on a gold price of US$275 per oz. — about half of today’s phenomenal price.

Pogo is expected to produce 400,000 to 500,000 oz. gold per year for at least a decade, with an average operating cost of US$140 per oz.

One of the biggest challenges facing Pogo now is hiring employees: mines from the Lower 48 are poaching qualified Alaskans and Teck is offering up to US$10,000 in moving expenses for some employees.

The mine is close enough to Fairbanks for employees to commute, but the city nearest the mine is Delta Junction, with a population of just 840. As yet, there is no organized borough in the area that could impose property taxes, so Teck has signed an agreement with the city of Delta Junction for a payment in lieu of taxes. The company has paid US$500,000 to the city in 2005 and will pony up another US$500,000 this year.

The modern mining industry has a good environmental track record in Alaska and wants it to stay that way. Environmentalists have to point to other states as examples of where mining can go wrong.

Still, Pogo’s construction was delayed in spring 2004 when a local environmental group filed an administrative appeal of the Environmental Protection Agency’s water-discharge permit for the project. Work stopped for a few weeks, until the issue was resolved in arbitration and the appeal was withdrawn.

In that case, Teck agreed to add two water-monitoring wells at the off-river treatment works and to fund a US$20,000 annual fish study of the Goodpaster River for 10 years.

Kensington

Unfortunately, Coeur d’Alene has been unable to reach such an amicable conclusion to the dispute over Kensington. Immediately after final permits for the mine were issued last summer, a coalition of environmental groups filed a lawsuit against the U.S. Army Corps of Engineers and the U.S. Forest Service, contending that a permit which would allow Coeur to dump tailings into Lower Slate Lake violates the Clean Water Act.

The Corps of Engineers subsequently suspended its permit, indicating that the permit needed to be reviewed before the case came to court. A mediation attempt failed and the parties are now waiting for a court date to be set.

Alaska governor Frank Murkowski, who is strongly pro-development, decided that the state should file a motion to intervene in the case in support of the mine, and Coeur filed a similar motion.

Construction can continue for now even though the permit has been suspended. Still, a portion of the mine road can’t be built and work on the tailings dam won’t be able to start this summer if the issue isn’t resolved by then.

“The tailings that we have, you can sprinkle it on your Cornflakes . . . it’s very, very benign material,” Kensington general manager Tim Arnold said last year.

The lake might even benefit from the tailings facility, he believes: “We will take an unproductive, subalpine, brackish lake and improve the fisheries. It will be a better habitat for the macroinvertebrates.”

The Kensington permitting process began in 2000 and the mine is due to go into production in January 2007. The state of Alaska has spent almost US$1 million on a 4-km road to transport Kensington workers to the ferry terminal and has promised another million dollars or so for an 8-km access road to the mine’s mill site.

The mine is expected to produce 100,000 oz. gold annually for at least a decade. Coeur estimates the capital cost of the mine at US$105 million, with an operating cost of about US$250 per oz.

The state estimates that Kensington will generate US$1.9 million in mining licence taxes, US$3.4 million in corporate income taxes and US$6.3 million in local property taxes during a 10-year life. Like Greens Creek, it will be a significant contributor to the local economy of Juneau, Alaska’s capital city, which has a population of around 31,000.

Giant Pebble

Pogo and Kensington, both underground gold mines, would look much like Mini Coopers if they could be parked alongside the Pebble project’s Hummer. According to Vancouver-based developer Northern Dynasty, the Pebble deposit contains 31.3 million oz. gold, 18.8 billion lbs. copper and almost 1 billion lbs. molybdenum in measured and indicated resources — and that’s before the latest discoveries have been analyzed.

The mine life could be 30 years or more and what was conceived as an open-pit mine may also have an underground component thanks to the new finds.

Northern Dynasty is touting Pebble as the largest gold deposit in North America and the second-largest copper deposit, after Cananea in Mexico.

Northern Dynasty acquired the Pebble property from Cominco in 2001 and is now seeking a major partner so that permit applications can be submitted in about a year.

A public debate over the project is already raging, fuelled in part by Northern Dynasty’s high profile and insistence on keeping Alaskans fully informed about its activities.

Only 1,700 people, mainly Alaska natives, live in the Bristol Bay villages around the mine site, but a packed conference attended by local residents, environmentalists and mining-industry representatives last year also attracted former Alaska governor Jay Hammond, who lived in the area until his death a few months ago.

New organizations have sprung up specifically to oppose the Pebble project. Leading the charge are the Renewable Resources Coalition, the Bristol Bay Alliance and Alaskans for Responsible M
ining, in co-operation with a wealthy local lodge-owner, Bob Gillam, who has made large contributions to the anti-Pebble campaign.

In testimony at the state legislature in February, Gillam said that he is the fifth-largest investor in Teck Cominco and owns US$1 billion worth of mining company stocks, but that he opposes “sulphide mines” because they are too polluting.

The legislature is considering whether it should request another layer of oversight in the Pebble permitting process, because of the project’s size. A proposed resolution would request the state’s Department of Natural Resources to prepare a land-management plan for the area around Pebble, a 2-year effort that would run concurrently with the permitting.

Mine supporters fear that this could lead to a reclassification of the land with restrictions on its use, deterring resource investors. The land is currently open to mineral entry and can only be closed by the legislature.

Few would deny that Northern Dynasty has done a remarkable number of environmental baseline studies in its quest to prove that this environmentally sensitive area, accessible only by air, can tolerate a mine, road and port. In 2005, the project employed 45 consulting firms, with a total Alaska workforce of 457, plus another 152 non-Alaskans, according to Northern Dynasty. Of the Alaskans, 112 were from local Bristol Bay communities.

“Our villages, I believe, they’re either going to go to work or die,” said mayor of the Lake and Peninsula Borough, Glen Alsworth, at the legislature. “If you can imagine the long-term effect of no economic opportunity, we see this played out in many rural areas with a lot of people living in hopelessness and helplessness and depression, because they’re not worrying about where to spend next year’s vacation, they’re trying to figure out how to pay the sewer bill at the end of the month, and that’s a bad predicament to be in.”

Lodge owners who take tourists fishing and hunting are less inclined to see the mine favourably.

Alaska’s commissioner for natural resources, Michael Menge, pledged his department’s neutrality at the legislative hearings.

“It’s the Department of Natural Resources’ responsibility to be very dispassionate, and be very cold and calculating in its analysis of any project or proposal that affects the state’s resources, and that is what we will do,” he said. “Each issue on this project will be ground to talcum powder and will be looked at from a thousand different directions.”

— The author is a freelance writer based in Anchorage, Alaska.