Legislature(2003 - 2004)
04/29/2004 08:44 AM House FIN
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HOUSE BILL NO. 556
An Act relating to a port development project at Lynn
Canal, providing legislative approval for the Alaska
Industrial Development and Export Authority to issue
bonds or otherwise provide financing for the project;
and providing for an effective date.
TERRY HARVEY, STAFF TO REPRESENTATIVE WEYHRAUCH, explained
that HB 556 is a revenue bond bill for the Kensington Mine
project located about 50 miles northwest of Juneau. He
stated that the Kensington Mine is nearing completion of its
permitting process and construction could begin next year.
The Alaska Industrial Development & Export Authority (AIDEA)
has helped to draft the bill. The revenue bonds are for the
port infrastructure at Cascade Point and Lower Slate Cove to
help transport mine supplies and workers.
Co-Chair Harris asked the amount that AIDEA has the
authority to bond without legislative approval. Mr. Harvey
said about $10 million, and clarified that the bill gives
AIDEA authorization.
JIM MCMILLAN, DEPUTY DIRECTOR OF CREDIT AND BUSINESS
DEVELOPMENT, ALASKA INDUSTRIAL DEVELOPMENT & EXPORT
AUTHORITY, VIA TELECONFERENCE, ANCHORAGE, expressed that
AIDEA supports the bill. He noted that AS 44.88 gives AIDEA
the authority to issue bonds, and the bonds would be in
excess of $10 million. The current project status includes
conceptual costs and designs.
Mr. McMillan stressed two points. The preliminary costs of
$7 million are "very soft," and AIDEA is concerned that
costs could exceed $10 million. The IRS code with tax exempt
financing of a dock facility allows for financing of related
upland improvements, which will be part of the due diligence
process. He said that it is uncertain whether any uplands
development will be included, but the financing could reach
well above $10 million.
Mr. McMillan explained that HB 556 is simply an
authorization allowing the project to proceed to the due
diligence process. The financing approval by AIDEA's board
of directors depends on several statutory requirements
including a feasibility analysis, a financial plan, and a
finding of the economic, social and environmental effects.
He noted that this is the beginning of a long process.
Authorization is required only when the project is to be
financed under AIDEA's development finance program, known as
"the own and operate." AIDEA would own the docks because the
IRS code requires government ownership to qualify for tax-
exempt financing. Tax exempt financing also requires the
likelihood of public use of the dock facilities. The AIDEA
would seek a determination from the IRS that the two
facilities qualify for public use.
Mr. McMillan said that AIDEA estimates 250-300 construction
jobs, and 110-250 permanent jobs at Kensington Mine. The
tax-exempt financing would assist the developer, Coeur
Alaska, through the issuance of tax-exempt bonds and lower
cost financing, which could save up to 2% on the financing
cost. The AIDEA proposes to issue conduit tax-exempt revenue
bonds, which means its credit and assets would not be at
risk. The bondholders who supply the money in an AIDEA
pass-through will only look at the project revenues from the
Kensington project, and any credit enhancements that the
underwriters may require in order to sell the bonds. He
emphasized the due diligence process and that this
authorization and neither a commitment on the part of AIDEA
to provide the financing nor a commitment by Coeur Alaska to
accept it.
Representative Hawker questioned the $7 million preliminary
figure while the bill reflects a $20 million bonding
authority. He asked if there would be other projects on
Lynn Canal that would qualify. Mr. McMillan replied that
AIDEA is not considering any other projects at this time.
Representative Hawker asked if AIDEA might end up with
excess bonding capacity if this bill were passed. Mr.
McMillan said that it is possible to finance other port
development projects in Lynn Canal with the excess bonding.
However, AIDEA would meet with the Legislature before
considering any other projects.
Representative Hawker asked if AIDEA would object to
tightening up the definition to make it clear that the
bonding authorization applies only to the specific project
involving the Kensington Mine. Mr. McMillan replied that
AIDEA would not object.
Representative Chenault questioned if it is intended that
the money go to other [upland] projects. He asked who would
pay for maintenance and repair of the facility, and if
public access would happen during the mine's operation or in
later years.
Mr. McMillan replied that there has not been any related
upland improvement identified, but AIDEA would make a
determination in the near future. An upland fuel storage
facility would qualify, but it is uncertain if it would be
required. Coeur has requested additional financial
assistance for a tailings disposal facility but AIDEA
wouldn't own it. The AIDEA can issue extra tax-exempt
conduit revenue bonds for solid waste disposal.
Regarding maintenance, Mr. McMillan explained that AIDEA
could enter into a use agreement with Coeur Alaska, who
would be totally responsible for dock maintenance and
operation. Public access is a requirement under IRS code and
it cannot be precluded, although the Kensington Mine would
have preferential use. If both dock facilities are financed
and owned by AIDEA, these would be available for public use.
Representative Fate remarked that if the life of the mine
does not extend the life of the port, the amount of usage
would stop shortly after the mine closes and he asked if
there would be problems meeting operations and maintenance
costs. Mr. McMillan replied that the projected mine life is
10 or 12 years, a relatively short term to finance a project
of this nature. Coeur Alaska expects other minerals [silver
and copper] and that the mine will be there longer than 10
years. At the end of the mine life agreement, AIDEA would
either lease or sell the dock facility to Coeur Alaska at
fair market value. The southern port facility at Cascade
Point would be on land owned by Goldbelt, with the potential
to transfer the facility to the Corporation. He said that
these issues would be addressed during the due diligence
process.
Representative Joule asked if there are other models in
place similar to this financing. Mr. McMillan described it
as "hybrid" financing, a combination of two programs. These
are a development finance program of own-and-operate,
wherein AIDEA owns the asset, and the issuance of not-at-
risk conduit bonds. He likened it to the Snettisham Project
that AIDEA sold to AEL&P through conduit financing so that
AIDEA is not at risk.
TIM ARNOLD, VICE PRESIDENT AND GENERAL MANAGER, COEUR
ALASKA, stated that the Kensington Mine project has been
planned for some time, and Coeur Alaska will be able to
proceed with development by mid-summer. He referred to
"Project Summary and Overview of Partnership Opportunities,
April 2004,"(copy on file) and explained that Coeur Alaska
could do the financing itself and it has two options. It
could build the facility and under the current supplemental
environmental impact statement (SEIS), could own and operate
it, leaving a "small footprint" by removing the dock at the
end of project. The other option would involve AIDEA getting
Coeur Alaska tax-exempt financing during the repayment
period, with State ownership after the mine closes.
Vice-Chair Meyer expressed support for the project. In
response to a question by Vice-Chair Meyer, Mr. Arnold said
that Coeur Alaska is full owner of the project. The
operation would involve 250 jobs, with additional jobs
during the construction phase.
Vice-Chair Meyer asked if the permitting process is working
well. Mr. Arnold answered that the project is halfway
through the NEPA process (the supplemental environmental
impact statement) because of design changes.
In response to a question by Representative Joule, Mr.
Arnold reiterated that there would be about 250 jobs when
the mine is in operation, with up to 300 jobs during
construction. He said their goal would be as much local hire
as possible, and secondarily Alaska hires, and then Outside
hires. The company would provide a good local training
program for operation of the mine.
Mr. Arnold discussed the rotation schedule with
Representative Joule, and described the Kensington as a
community mine involving a beautiful commute, with the
possibility of a different schedule to work around
employees' needs.
Representative Joule asked the annual payroll. Mr. Arnold
thought it would be about $19 million, and said he would
provide the figure. Representative Joule asked if he
anticipated problems related to the marine life and fishing
in Lynn Canal. Mr. Arnold replied that he did not, and it
was addressed in the supplemental EIS.
Representative Hawker asked if the tunnel connecting the two
mine sites would be a vehicle or rail tunnel. Mr. Arnold
explained that it would be a vehicle tunnel for running a
40-ton truck from Kensington Mine to Jualin Mine. In
response to a question by Representative Hawker, Mr. Arnold
said that he hoped to lower the $5 million cost estimate for
1-1/2 miles.
Representative Croft asked the steady price of gold needed
for the mine to be economical. Mr. Arnold said the break-
even cost would be $200 per ounce. He noted that gold has
been hovering between $400 and $425, and has now dipped
below $400.
In response to a question by Vice-Chair Meyer, Mr. Arnold
said that he expected the mine to produce some silver and
copper, but the payable metal would be gold. It is primarily
a gold mine.
Representative Hawker MOVED to ADOPT Amendment #1. Co-Chair
Williams OBJECTED for purposes of discussion.
Amendment #1 reads:
Page 1, line 9
Insert: "at Slate Creek Cove and Cascade Point"
To read:
(a) The Alaska Industrial Development and Export Authority
may issue bonds to finance the acquisition, development,
improvement, and construction of port and related facilities
located at Slate Creek Cove and Cascade Point on Lynn Canal
in Southeast Alaska.
Representative Hawker explained that Amendment #1 addresses
the issue of over-authorization of bonding and makes it a
site-specific project.
Co-Chair Williams removed his objection. Amendment #1 was
adopted.
Representative Foster MOVED to report CSHB 556(FIN) out of
Committee with individual recommendations and the
accompanying fiscal note. There being NO OBJECTION, it was
so ordered.
Co-Chair Williams pointed out a conflict of interest because
he is a shareholder in Cape Fox Corporation which is
negotiating a land trade in the area.
CSHB 556(FIN) was REPORTED out of Committee with a "do pass"
recommendation and with one previously published fiscal
impact note.
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