Legislature(2005 - 2006)BELTZ 211

04/27/2005 01:30 PM COMMUNITY & REGIONAL AFFAIRS


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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ HB 27 MUNI PROP TAX EXEMPTION FOR POLICE HOMES TELECONFERENCED
Heard & Held
+ HB 121 SERVICE AREAS IN SECOND CLASS BOROUGHS TELECONFERENCED
Moved CSHB 121(2d RLS)) Out of Committee
*+ SB 188 BULK FUEL REVOLVING LOAN FUND CAP TELECONFERENCED
Moved CSSB 188(CRA) Out of Committee
Bills Previously Heard/Scheduled
= SB 179 MINERALS TAX/PAYMENTS TO MUNIS IN LIEU
Heard & Held
          SB 179-MINERALS TAX/PAYMENTS TO MUNIS IN LIEU                                                                     
                                                                                                                                
CHAIR GARY  STEVENS announced the committee  would hear a  Donlin                                                               
Creek Project update that relates to SB 179.                                                                                    
                                                                                                                                
JAMES FUEG, Technical  and Permitting Coordinator for the  Donlin                                                               
Creek joint  venture, gave  a review  of the  Placer Dome  mining                                                               
company and an  overview of the project.  He said he would  touch                                                               
on the highlights of a larger presentation.                                                                                     
                                                                                                                                
2:10:54 PM                                                                                                                    
                                                                                                                                
     Page 2                                                                                                                     
                                                                                                                                
     Project Location                                                                                                           
                                                                                                                                
The Donlin Creek project  is located about 12 miles north of  the                                                               
village of  Crooked Creek and  180 miles up  the Kuskoquim  River                                                               
from  Bethel.  The  location is  remote  and  all  materials  are                                                               
supplied by  air transportation.  If the mine  goes forward,  all                                                               
supplies for  construction would be  barged up river  to a  point                                                               
about five  miles from the  mine. The  company would construct  a                                                               
road to transport goods the final five miles to the mine site.                                                                  
                                                                                                                                
Page 3                                                                                                                          
                                                                                                                                
Donlin Creek Joint Venture                                                                                                      
                                                                                                                                
  · Placer Dome Managing Joint Venture Partner                                                                                  
  · Nova Gold Resources Joint Venture Partner                                                                                   
  · Calista Regional Corporation is the subsurface estate owner                                                                 
  · The    Kuskokwim   Corporation   -   the   regional   village                                                               
     corporation - owns the surface estate                                                                                      
                                                                                                                                
Placer Dome has been in  the area for ten years and has a  strong                                                               
local hire history. Currently  50-70 people are on site, but  the                                                               
number  varies depending  on  what's going  on.  Typically  65-80                                                               
percent of the people in the camp are from the local area.  A lot                                                               
of  professional staff  comes from  Alaska  and a  local  charter                                                               
company transports personnel to and from the site.                                                                              
                                                                                                                                
2:12:51 PM                                                                                                                    
                                                                                                                                
Page 10                                                                                                                         
                                                                                                                                
Current Resource Estimate:                                                                                                      
                                                                                                                                
Work began in 1995  and expenditures to date are on the order  of                                                               
$58 million.  Of that, Placer  Dome has spent  about $45  million                                                               
and Nova Gold Resources  has spent about $10 million. The  budget                                                               
for  2005  is  about  $11.5  million.  The  payroll  directed  to                                                               
shareholders  in the  area  for  the  Month of  March  was  about                                                               
$180,000.                                                                                                                       
                                                                                                                                
In  spite of  the amount  of  time and  money already  spent  the                                                               
company  is still  several years  and  millions of  dollars  from                                                               
making a final determination  on whether or not to go ahead  with                                                               
the project.                                                                                                                    
                                                                                                                                
As it stands now  the total resource amounts to about 25  million                                                               
ounces  of  gold of  which  11  million ounces  is  measured  and                                                               
indicated  and  14  million  ounces  is  inferred.  Measured  and                                                               
indicated is a  reflection of the  measure of confidence that  is                                                               
needed to be able  to do a pre-feasibility study. Not all of  the                                                               
25  million ounces  will necessarily  be mined.  The decision  is                                                               
driven by economics that  will evolve as the studies advance  and                                                               
as the mine advances - if indeed it does goes forward.                                                                          
                                                                                                                                
2:14:43 PM                                                                                                                    
                                                                                                                                
Page 12                                                                                                                         
                                                                                                                                
Primary Issues:                                                                                                                 
                                                                                                                                
There are three major issues upon which the project rests and                                                                   
they are power, lime and logistics.                                                                                             
                                                                                                                                
     ·      Power: About 80 megawatts will be produced on site with                                                             
  diesel generation plants with an anticipated 40 percent wind power                                                            
  offset.                                                                                                                       
     ·      Lime: A low-grade lime resource has been identified in                                                              
  the region of the deposit and is being drilled out to determine                                                               
  whether it will meet the requirements.                                                                                        
     ·      Logistics: Up to 250,000 tons of consumables per year                                                               
  would be required for operation. It would be barged up the                                                                    
  Kuskoquim River to a port location then over to Donlin Creek.                                                                 
                                                                                                                                
Page 13                                                                                                                         
                                                                                                                                
Power - Potential Solution                                                                                                      
                                                                                                                                
  · Current Plans require 80 MW Peak Load, 70 MW Average Load                                                                   
     (30k tons per day mill)                                                                                                    
  · Evaluated more than 10 options                                                                                              
  · On site generation using diesel is current focus                                                                            
  · Potential to supplement with wind generation                                                                                
       · Wind    option   requires   data   collection   for                                                                    
          validation                                                                                                            
       · Objective - offset ~40% of fuel requirement                                                                            
                                                                                                                                
Page 15                                                                                                                         
                                                                                                                                
Logistics and Infrastructure                                                                                                    
                                                                                                                                
  · Annual consumables (30,000 tons per day mill)                                                                               
       · General Consumables            50,000 tons                                                                             
       · Fuel (no wind generation)      140,000 tons                                                                            
       · Lime (assumes on site CCE)     20,000 tons                                                                             
  · Barge materials up the Kuskokwim River                                                                                      
  · Port location at Jungjuk Creek                                                                                              
  · All weather road to Donlin Creek                                                                                            
  · Construct a new 6,000 foot airstrip near Donlin Creek                                                                       
                                                                                                                                
Page 16                                                                                                                         
                                                                                                                                
Preliminary Process Outline                                                                                                     
                                                                                                                                
  · Conventional open pit                                                                                                       
       · 2 pits (ACMA, Lewis)                                                                                                   
  · Track and shovel mining                                                                                                     
  · Evaluating 30,000 and 40,000 tons per day scenarios                                                                         
       · Logistical Supports                                                                                                    
       · Grade control/dilution issues                                                                                          
  · Three stage crushing and primary ball milling                                                                               
  · Floatation/Pressure oxidation mill - This process cooks the                                                                 
     refracted ore out of the sulfide in giant pressure cookers,                                                                
     which is why so much power is needed for the operation.                                                                    
  · Conventional tailings                                                                                                       
                                                                                                                                
2:16:54 PM                                                                                                                    
                                                                                                                                
Page 17                                                                                                                         
                                                                                                                                
Infrastructure                                                                                                                  
                                                                                                                                
If the project moves ahead, approximately 25 miles of road  would                                                               
be constructed  from the river  to the site.  A port and  laydown                                                               
area would  be constructed at  Jungjuk Creek as  well as a  6,000                                                               
foot surfaced runway to  fly personnel and equipment in and  out.                                                               
The  company will  build  all  facilities associated  with  power                                                               
generation, including fuel storage and transmission lines,  which                                                               
amounts to a significant part of the project.                                                                                   
                                                                                                                                
2:17:34 PM                                                                                                                    
                                                                                                                                
Page 18                                                                                                                         
                                                                                                                                
Environmental studies have been ongoing including more than  just                                                               
the  project area  itself.  The  entire access  corridor  up  the                                                               
Kuskoquim River down to  the shores of the Kuskoquim Bay must  be                                                               
considered and evaluated to  ensure that the project can be  done                                                               
in an environmentally sound manner.                                                                                             
                                                                                                                                
2:17:59 PM                                                                                                                    
                                                                                                                                
Page 20                                                                                                                         
                                                                                                                                
Project Description                                                                                                             
                                                                                                                                
  · 30,000 to 40,000 ton per day mill operation                                                                                 
  ·  Waste rock and initial tailings deposited in American                                                                      
     Valley where the deposit is located. Later tailings may be                                                                 
     deposited in Anaconda Valley if the first is filled.                                                                       
  · Supplies barged up Kuskokwim River to port at Jungjuk Creek                                                                 
  · Power provided by onsite diesel supplemented by wind                                                                        
                                                                                                                                
Based on current estimates,  the direct costs of the project  are                                                               
in  the  neighborhood  of  $1  billion.  That  is  the  cost   of                                                               
purchasing    equipment,   constructing    buildings,    building                                                               
infrastructure. It doesn't  include construction overhead so  the                                                               
total cost will be significantly more than $1 billion.                                                                          
                                                                                                                                
This is a large  project with large scope and he speculated  that                                                               
if  the project  goes  ahead, it  would  be the  biggest  private                                                               
industry project  in Alaska  after the  pipeline. This  is in  an                                                               
area that would stand to benefit tremendously from the project.                                                                 
                                                                                                                                
Because of  the remote location and  the difficult nature of  the                                                               
entire process, the  capital investment would be huge.  Therefore                                                               
a  sound  understanding  of  the  process,  and  a  well  defined                                                               
economic  model is  necessary  so  the  board can  make  a  final                                                               
determination and get financing for the project.                                                                                
                                                                                                                                
Currently, one of the  biggest unknowns in the economic model  is                                                               
the  element  of  local taxation.  This  is  why  SB  179  is  so                                                               
important  to  Donlin Creek  and  any  similar  projects  in  the                                                               
future.                                                                                                                         
                                                                                                                                
MR. FUEG concluded:                                                                                                             
                                                                                                                                
     It's not  an issue of  us wanting  to bypass the  local                                                                    
     community.  We recognize  the concerns  about  imposing                                                                    
     agreements  on  local  communities  and  we   certainly                                                                    
     respect and share your concern about all  these issues.                                                                    
     What we  are doing, is asking  for some mechanism  that                                                                    
     we can  use to  negotiate and develop  a tax  certainty                                                                    
     that we're going to need to move this project forward.                                                                   
                                                                                                                              
CHAIR GARY STEVENS asked how many personnel are required now  and                                                               
during full operation.                                                                                                          
                                                                                                                                
MR.  FUEG replied  during the  summer between  40 and  60  people                                                               
would  be employed  on any  given  day. During  construction  the                                                               
estimate is for about  600 people for about two years.  Depending                                                               
on  final size,  between 350  and 400  people would  be  employed                                                               
during operation.                                                                                                               
                                                                                                                                
CHAIR GARY STEVENS asked  what happens to the ore when it  leaves                                                               
the site.                                                                                                                       
                                                                                                                                
MR. FUEG clarified this is strictly a gold mine. Gold bars  would                                                               
be molded on-site and the finished product would be flown out.                                                                  
                                                                                                                                
2:22:12 PM                                                                                                                    
                                                                                                                                
SENATOR STEDMAN asked where the crew would come from.                                                                           
                                                                                                                                
MR. FUEG  replied the company  would hire locally  to the  extent                                                               
possible and  transportation would be similar  to what's done  at                                                               
the Red Dog. Flights  would go to and from Anchorage and  smaller                                                               
charter aircraft  would provide  transportation to  and from  the                                                               
various local  villages. The rotation would  likely be two  weeks                                                               
on and two weeks off. The mine would run 24 hours a day 365  days                                                               
a year.                                                                                                                         
                                                                                                                                
SENATOR STEDMAN asked about reclamation.                                                                                        
                                                                                                                                
MR. FUEG  said a reclamation plan  is in progress. Although  they                                                               
can't leave  things the way they  were before mining began,  they                                                               
don't intend to leave issues behind once the mine has moved on.                                                                 
                                                                                                                                
SENATOR STEDMAN  asked for  the  estimated lifespan of  the  mine                                                               
once it's operational.                                                                                                          
                                                                                                                                
MR. FUEG replied it  depends on the mill size that is settled  on                                                               
and the  percentage of the reserves  that can actually be  mined.                                                               
The number they are  using currently is 15 years, but it's  worth                                                               
noting  that  mines  typically  run  longer  than  the   original                                                               
estimated life.                                                                                                                 
                                                                                                                                
SENATOR WAGONER  noted the  concern associated  with capping  the                                                               
millage rate and whether 6 mills would be sufficient if the  area                                                               
were to incorporate.                                                                                                            
                                                                                                                                
MR. FUEG  said he could only  speak to Donlin  Creek as a  Placer                                                               
Dome  representative.  That being  said,  $1  billion  in  direct                                                               
capital cost translates to  $1 million per mill. That would  give                                                               
the newly  organized, rural,  government a  $2 million  operating                                                               
budget.  Assuming the  area  goes  with the  model  borough,  the                                                               
Kuspuk School District has  about 1,500 people. Looking at  other                                                               
rural boroughs  in the state,  that amount is  more than in  line                                                               
with the typical budgets.                                                                                                       
                                                                                                                                
SENATOR WAGONER remarked  corporate and other taxes would  amount                                                               
to another 9 or 10 percent.                                                                                                     
                                                                                                                                
MR. FUEG said in  addition to corporate and mining license  taxes                                                               
there  is   a  royalty  component  that   would  go  to   Calista                                                               
Corporation.                                                                                                                    
                                                                                                                                
CHAIR GARY STEVENS  asked for some background information on  the                                                               
company.                                                                                                                        
                                                                                                                                
MR. FUEG  explained that Placer Dome  is an international  mining                                                               
company  headquartered  in   Vancouver,  Canada.  Currently   the                                                               
company employs  18,000 people in mines  that are scattered  from                                                               
Africa, Indonesia, and Australia to North and South  America. The                                                               
company operates  several mines  in  Nevada and  one in  Montana.                                                               
Donlin Creek would be the only mine in Alaska.                                                                                  
                                                                                                                                
Placer Dome has a history of building mines in  undeveloped areas                                                               
such as Donlin Creek. The mine in Indonesia and the Mussel  White                                                               
Mine in northern Canada  are probably the most similar to  Donlin                                                               
Creek and are located in completely undeveloped areas.                                                                          
                                                                                                                                
Placer Dome  has a  history of working  successfully with  Native                                                               
people in  remote mine areas and  a philosophical cornerstone  of                                                               
doing business is their sustainability policy. They look at  what                                                               
would be left behind and what the long-term benefits would be  to                                                               
the  community. They  recognize  that mining  isn't  a  renewable                                                               
resource so it's  a corporate policy requirement to leave  behind                                                               
something  positive. Typically  that takes  the  form of  a  more                                                               
skilled and more highly educated workforce.                                                                                     
                                                                                                                                
Placer Dome produces about  4 million ounces of gold a year  plus                                                               
several  hundred thousand  tons of  copper. Currently  they  have                                                               
three large projects at a similar stage of development as  Donlin                                                               
Creek. One is in Chili, one is in the Dominican Republic and  the                                                               
third is Donlin Creek.                                                                                                          
                                                                                                                                
2:30:37 PM                                                                                                                    
                                                                                                                                
CHAIR  GARY STEVENS  questioned how  far the  mine site  is  from                                                               
Bethel.                                                                                                                         
                                                                                                                                
MR FUEG replied it's about 180 miles away. The  closest community                                                               
of  any size  is Aniak  and the  closest town  is Crooked  Creek,                                                               
which is 12 miles south.                                                                                                        
                                                                                                                                
2:31:10 PM                                                                                                                    
                                                                                                                                
SENATOR WAGONER asked if he thought the mill rate is excessive.                                                                 
                                                                                                                                
MR.  FUEG said  the company  was hoping  for something  a  little                                                               
lower and they are  still evaluating the effect. Certainly it  is                                                               
a burden to the project, but they  recognize their responsibility                                                               
to the  local community.  As a  company they've  taken a  neutral                                                               
position on  borough formation  in the  area. They  want to  meet                                                               
their commitment  in terms of  education and if  a borough  forms                                                               
they would like to  contribute their fair share to the  operating                                                               
costs of  the borough while recognizing that  they would draw  no                                                               
services.                                                                                                                       
                                                                                                                                
SB 179.was held in committee.                                                                                                   

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