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
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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.