Legislature(2003 - 2004)

04/29/2004 08:44 AM House FIN

Audio Topic
* first hearing in first committee of referral
+ 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.                                                                                                                    
                                                                                                                                

Document Name Date/Time Subjects