Legislature(2005 - 2006)Fairbanks
08/22/2005 01:00 PM House OIL & GAS
| Audio | Topic |
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| Start | |
| Update on Mining Operations in Interior Alaska | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | TELECONFERENCED | ||
ALASKA STATE LEGISLATURE
JOINT MEETING
HOUSE RESOURCES STANDING COMMITTEE
SENATE RESOURCES STANDING COMMITTEE
HOUSE SPECIAL COMMITTEE ON OIL AND GAS
August 22, 2005
1:21 p.m.
MEMBERS PRESENT
HOUSE RESOURCES
Representative Jay Ramras, Co-Chair
Representative Gabrielle LeDoux
Representative Kurt Olson
Representative Harry Crawford
SENATE RESOURCES
Senator Thomas Wagoner, Chair
Senator Ralph Seekins, Vice Chair
Senator Fred Dyson (via teleconference)
Senator Gretchen Guess
HOUSE OIL AND GAS
Representative Lesil McGuire
Representative Norman Rokeberg (via teleconference)
Representative Berta Gardner
MEMBERS ABSENT
HOUSE RESOURCES
Representative Ralph Samuels, Co-Chair
Representative Jim Elkins
Representative Carl Gatto
Representative Paul Seaton
Representative Mary Kapsner
SENATE RESOURCES
Senator Ben Stevens
Senator Bert Stedman
Senator Kim Elton
HOUSE OIL AND GAS
Representative Vic Kohring, Chair
Representative Nancy Dahlstrom
Representative Ralph Samuels
Representative Beth Kerttula
OTHER LEGISLATORS PRESENT
Representative Mike Chenault
Representative John Coghill
Representative John Harris
Representative Mike Kelly
Representative Bill Stoltze
Representative David Guttenberg
Senator Gene Therriault
COMMITTEE CALENDAR
UPDATE ON MINING OPERATIONS IN INTERIOR ALASKA
PREVIOUS COMMITTEE ACTION
No previous action to record
WITNESS REGISTER
Presenters:
BOB LOEFFLER, Director
Division of Mining, Land, and Water
Department of Natural Resources
DAVID SZUMIGALA
DGGS Mineral Resource Projects and Products
JOHN WILD, Vice President/General Manager
Fort Knox Mine
[Due to technical difficulties the audio from Mr. Wild's
testimony is not available.]
KARL HANNEMAN
Teck-Pogo Mine
STEVE BORELL, Executive Director
Alaska Miners Association
ACTION NARRATIVE
CO-CHAIR JAY RAMRAS called the joint meeting of the House
Resources Standing Committee, the Senate Resources Standing
Committee, and the House Special Committee on Oil and Gas to
order at 1:21:23 PM. Representatives Ramras, LeDoux, Kelly,
Olson, McGuire, Rokeberg (via teleconference), Stoltze,
Chenault, Coghill, Harris, Guttenberg, Crawford, and Gardner and
Senators Wagoner, Seekins, Dyson (via teleconference),
Therriault, and Guess were present at the call to order. Co-
Chair Ramras pointed out that former Representatives Bud Fate
and Jeanette James and former Senator Pete Kelly were in
attendance.
PASTOR PHILIP KUEHNERT, Zion Lutheran Church, gave the
invocation, which was followed by the Pledge of Allegiance.
^Update on Mining Operations in Interior Alaska
1:26:23 PM
CO-CHAIR RAMRAS announced that the only order of business would
be the update on mining operations in Interior Alaska.
1:27:43 PM
BOB LOEFFLER, Director, Division of Mining, Land, and Water,
Department of Natural Resources, began by first discussing the
state's hard rock mines, which provide the most productivity,
employment, and contribution to state government. Therefore,
placer mines remain an important part of the state's history
even in the present. Mr. Loeffler related that this has been a
good year for exploration, which is what the state lives on in
the future. Exploration is measured in dollars or reported
exploration spending and the number of active claims. He then
showed the committees a graph of exploration dollars, which
related that last year the mineral industry spent $70 million.
The aforementioned is the largest amount the mineral industry
has spent in two decades. Furthermore, the amount of claims
staked has dramatically increased to about 25 million acres. He
attributed the increasing percentage that Alaska is gaining from
North American exploration to high metal prices and the proven
ability to permit hard rock mines in Alaska in an
environmentally friendly way. Finding Pogo and others convince
people that there are still [reasons to explore]. Mr. Loeffler
then used a map of exploration to illustrate that mining
exploration is widely distributed throughout the state.
1:31:28 PM
MR. LOEFFLER then turned attention to placer mining, which he
said is [recovering] from a few years of low metal prices.
Roughly 265 placer mines were permitted, although he suspected
that somewhat less than that are in operation. Still, that's an
increase over the last couple of years. Mr. Loeffler said that
although placer mines aren't a [major] contributor to employment
and the state coffers, they are important to the rural
communities in which they are located. He then showed the
committee a photo of an operating placer mine as well as a
reclaimed placer mine.
MR. LOEFFLER moved on to hard rock mines by showing the
committee a map highlighting the following four large mines in
the state: Red Dog, Fort Knox, Usibelli, and Greens Creek.
Kensington and Pogo Mines are under construction and Rock Creek,
Donlin, and Pebble Mines are advanced exploration projects. Mr.
Loeffler then reviewed the history of mining. From World War II
to 1989, when Red Dog and Greens Creek started, there were no
large mines in the state. Over the past 15 years, the state has
developed an industry that has grown. This is an important
context to keep in mind, he opined.
MR. LOEFFLER first addressed the Red Dog Mine, which is the
world's largest lead zinc mine. The Red Dog Mine really made
the Northwest Arctic Borough possible. However, when the Red
Dog Mine began there was no reclamation requirement nor a
reclamation bond or tailings permit. Therefore, the state is
now in the process of bringing its permits up to date with
existing law. He expected that those permits would be in place
late this year. He then turned to the Fort Knox Mine, for which
the ore body is on Alaska Mental Health Trust Land. He
explained that there is no contribution to the permanent fund.
Mr. Loeffler opined that the reclamation at Fort Knox is
something to be proud of, and highlighted that the organization
of Alaskans for Responsible Mining has held up Fort Knox as an
example of responsible mine practices. The Greens Creek Mine
started production in 1989, was suspended in 1993, and resumed
in 1995. The Usibelli Mine is the oldest of the state's large
mines; it started in 1943. There is hope that the Usibelli Mine
will expand its export shipments in the near future, he related.
He highlighted the reclamation of the Usibelli Mine as well.
1:37:46 PM
MR. LOEFFLER returned to the state's two large mines under
construction: Pogo and Kensington. The Pogo Mine is the
state's first large mine that will be located on state land.
Therefore, it will be the state's first mine from which royalty
comes directly to the state. The Kensington Mine was permitted
in June and started production in early July. Mr. Loeffler then
focused on future projects, which haven't come in for permitting
yet. Rock Creek, located on state land by Nome, has two
separate sites that have a four- to five-year mine life. Donlin
Creek Mine is a larger mine located on Native land.
[Due to technical difficulties the audio is practically
inaudible.]
There was discussion regarding the local contribution of mines.
1:42:28 PM
[Due to technical difficulties the audio is practically
inaudible and the transmission was disconnected at 1:54 p.m.]
1:56:54 PM
DAVID SZUMIGALA, Alaska Division of Geological and Geophysical
Surveys (DGGS), Mineral Resource Projects and Products,
responding to a question, informed the committees that the
geophysical survey has surveyed about 5.6 million acres, which
amounts to about 11-13 percent of the 40 million acres of
potential mineral resource lands in Alaska. Therefore, a lot of
land remains to be surveyed. Dr. Szumigala explained that DGGS
is mandated to conduct geological and geophysical surveys in
order to determine the potential of Alaska mines for the
production of metals and minerals. Many of DGGS's products are
to designed to get people to come to Alaska or to help those who
explore Alaska in their efforts to develop mines. Specifically,
DGGS provides information to those funding exploration in
Alaska. He utilized a map to illustrate the wide distribution
of projects throughout the state. Dr. Szumigala highlighted
DGGS's web page because it can help anyone anywhere with regard
to mining information. In fact, it received over 42,000 hits in
fiscal year 2004. He attributed part of those hits to the fact
that historical documents were converted to PDF files that can
be easily downloaded onto a computer for instant use. Since
DGGS did such a good job with its conversion, the United States
Coast Guard (USGS) has contracted with DGGS to convert most of
USGS's pertinent publications into PDF documents, which are
located on DGGS's web site. Therefore, most all of Alaska's
historical geology can be obtained from DGGS's web site.
DR. SZUMIGALA highlighted DGGS's cooperative program with the
United States Bureau of Land Management (BLM), which is a
mineral potential assessment of the Kobuk Seward Peninsula.
Such cooperative programs benefit the state if the best
information is available for resource planning and decisions.
He also highlighted the land selection project, which provides
information on geology and mineral deposits over the land the
state still has to select and convey from the federal
government. About 14 million acres are left to be conveyed of
which about 8.5 million acres has high to moderate mineral
potential. Therefore, [the goal] is to obtain the best benefit
for the state by providing a land selection list based on the
highest [mineral] potential. Dr. Szumigala mentioned the
geological material services center in Eagle River.
[Due to technical difficulties the audio is inaudible and thus
the transmission was disconnected at 2:08 p.m. The audio begins
again at 3:00 p.m.]
3:00:42 PM
KARL HANNEMAN, Teck-Pogo Mine, reviewed the Teck-Pogo Mine with
visual aids. He discussed road construction [related to mining
operations]. Mr. Hanneman also discussed the construction of a
transmission line, which he said was similar to that between
Eielson [Air Force Base] and Delta [Junction]. He reviewed the
locations of the substations [on the transmission line]. He
mentioned the construction of a water treatment plant.
3:06:41 PM
CO-CHAIR RAMRAS pointed out that often folks don't realize the
upfront capital investment necessary. Therefore, he requested
that Mr. Hanneman detail the range of gold prices between the
beginning of this project in 1997 and now, what the [mine] cost
to build, and from where the capital is coming.
MR. HANNEMAN recalled that [the price of gold] was about $325
and now it has risen to about $425. The objective was a 10
percent return at a price of $275 gold. "When the price was
that low, we weren't making it and we were concerned," he
related. He mentioned that there were several iterations of the
feasibility study trying to optimize the project. Ultimately,
the board approved the project with a capital cost of $284
million. Had the capital costs reached the $320 million, the
outcome would've been less certain. Because this project has a
high dollar value per ton of ore and the project is in
operation, the operating costs are quite low while the cost of
capital recovery will be high. Mr. Hanneman said that he didn't
have a stress price, although there is concern.
3:09:11 PM
MR. HANNEMAN informed the committees that there will have to be
a manned camp on site that consists of about 230 individuals.
The camp also includes a shop. He highlighted the importance of
collecting and treating the water of the project, and showed the
committee pictures of the various aspects of the water
collection and treatment. He noted that currently the project
has about 450 people on site. He estimated that construction
will essentially be over in December. He then provided a list
of the contractors who have provided support for the project.
In 2004 approximately $104 million was paid to Alaska
contractors and to date the project has 69 percent Alaska hire.
He reviewed the [company's] commitment to Alaska hire and the
training and policies it employed to that end. Mr. Hanneman
noted that there is a worldwide mining boom, which has led to
the offering of signing bonuses such that Teck-Pogo, Inc. is
offering up to $10,000 for moving expenses.
3:18:35 PM
CHAIR WAGONER inquired as to the shifts mine employees work.
MR. HANNEMAN answered that there are a number shifts. There are
shifts in which the employee works four days and has three days
off. There is also a shift in which the employee works two
weeks and has one week off. "The challenge of developing a
workforce in this environment is significant," he opined. In
further response to Chair Wagoner, Mr. Hanneman confirmed that
the out-of-state workers tend to work the two weeks on and one
week off shift. Therefore, the $10,00 bonus is held up as an
incentive to relocate.
3:20:07 PM
MR. HANNEMAN turned attention to the list of professionals who
reside in the area of the mine, and Pogo's permanent workforce
list per job classification. He opined that the company will
continue to address the challenges in order to optimize Alaska
hire. Furthermore, the company is exploring manners in which to
lengthen the life of the project beyond 10 years.
3:22:23 PM
SENATOR THERRIAULT inquired as to the return on capital to
[Teck-Pogo, Inc.] over the life of the mine, taking into
consideration the increase of the infrastructure.
MR. HANNEMAN explained that the objectives were very clear when
the project started, such that there was a goal of 10 percent
return at [a gold price] of $275. However, the project has
changed a lot, including the increase in capital costs. The
financial outlook hasn't been reprojected at this point and
won't be until construction is complete because the cost
escalation risk is not yet over.
3:23:26 PM
CO-CHAIR RAMRAS recalled Dr. Szumigala's example of how
government can help spark the private sector. Therefore, he
inquired as to what the state can do to help with the workforce
development problem.
MR. HANNEMAN opined that the effort, with which Chair Wagoner
was involved, to focus and coordinate training efforts is "a
good thing." Therefore, he encouraged the aforementioned to
continue. In further response to Co-Chair Ramras, Mr. Hanneman
specified that the salary base for Pogo is in the range of
$66,000. It's a difficult work environment and faces challenges
with regard to employees who are accustomed to working at a
higher rate seasonally. Although these are good jobs, the
hourly rate doesn't compete with Davis-Bacon wages or summertime
construction.
3:26:11 PM
REPRESENTATIVE HARRIS asked if [Teck-Pogo, Inc.] has worked with
organized labor in trying to develop a local workforce that can
be trained in its infrastructure.
MR. HANNEMAN said that [Teck-Pogo, Inc.] really values its
relationships with some of the unions. There have been some
discussions in that regard, although nothing has been pursued at
this point. In response to Co-Chair Ramras, Mr. Hanneman
related that even before construction [Teck-Pogo, Inc.] tried to
develop relationships with the communities in the area relating
the jobs that would be coming available as well as the training
necessary for them. Furthermore, there has been a
[collaborative] relationship with regard to job-preparedness
issues. In fact, as recruitment begins for entry-level
positions there has been contact with a number of the village
councils for recommended candidates.
3:28:31 PM
CO-CHAIR RAMRAS related that he was recently in Delta. He
opined that it's difficult to see the direct impact of Teck-
Pogo, Inc. because of the work going on at Fort Greely. He
inquired as to the number of support jobs created as related to
the construction of the mine.
MR. HANNEMAN replied no.
3:29:30 PM
SENATOR THERRIAULT inquired as to whether there is a trend with
regard to the location in which permanent employees are choosing
to live.
MR. HANNEMAN explained that [Teck-Pogo, Inc.] offers
transportation from Tok through Delta to Pogo or from Fairbanks
to Pogo. In further response to Senator Therriault, Mr.
Hanneman specified that currently there are more riders on the
transport from Fairbanks.
3:30:40 PM
CO-CHAIR RAMRAS requested that Mr. Hanneman touch on the
discussions of the [Fairbanks North Star Borough] expanding and
how expansion may impact the strategic planning of Teck-Pogo,
Inc.
MR. HANNEMAN said that Teck-Pogo, Inc. has sought the support of
the Delta community, which has responded greatly. He opined
that there will be an agreement that allows Delta to choose
whether it proceeds with a borough or not at their own
discretion. If Delta chooses to proceed, he said that Teck-
Pogo, Inc. will be an active participant through a payment in
lieu of taxes. Mr. Hanneman mentioned that "it was somewhat
delayed" due the lack of passage of House Bill 217 of the
Twenty-Third Alaska State Legislature. The aforementioned
legislation would've clarified that in areas with pipeline or
gasline assets that don't choose to implement a property tax,
the [area] wouldn't be penalized and wouldn't have to provide
that contribution to the local schools. That piece is key in
regard to Delta's fiscal plan and whether a borough would make
sense.
3:33:41 PM
SENATOR THERRIAULT turned attention to the water plant, and
inquired as to the expected amount of leaching from the
mineralized belt. He also inquired as to what the [water plant]
will treat.
MR. HANNEMAN explained that the ore body includes gold and
elevated levels of arsenic, which isn't that dissimilar from the
ground water around Fairbanks. He said that the goal is to
remove, prior to discharge, the arsenic from the collected
water. A (indisc.) coal precipitation plant has demonstrated its
effectiveness over the last five years as there hasn't been a
water quality "exceedence" during that period of time. The
chemistry of arsenic is such that it's readily removed.
3:34:54 PM
REPRESENTATIVE HARRIS opined that one of the concerns with
regard to borough formation is that the mine and its owners not
be the sole source of revenue of the borough as is the case with
the Red Dog Mine. He asked if that was a choice that Teck-Pogo,
Inc. wanted to avoid.
MR. HANNEMAN indicated agreement.
3:36:13 PM
STEVE BORELL, Executive Director, Alaska Miners Association,
updated the committees with regard to smaller mining operations.
He began by relating that this is a unique time in history
because the prices of precious metal, base metals, and coal are
high. To his knowledge the aforementioned has not occurred
before. This relates to the lack of qualified workers. Mr.
Borell then turned to the question regarding why there aren't
more small placer miners. He noted that it continues to be
difficult for the small family mines, which he attributed to the
following things. In the past there has been uncertainty with
regard to National Pollutant Discharge Elimination System
(NPDES) permits. He explained that over the past 20 years, the
placer mining industry has went from an almost nonregulated
industry to one that is highly regulated.
3:40:36 PM
CO-CHAIR RAMRAS recalled that Governor Murkowski was proactive
in placing NPDES in the hands of Alaska and out of the hands of
the federal government. He opined that NPDES wrecked mining for
small families.
MR. BORELL agreed that NPDES was a major factor in the
[deterioration] of mining for small families. Furthermore, the
uncertainty leading up to where the mining industry is today was
a large contributor. The state, he noted, is in the process of
taking primacy. He also attributed the difficulty of small
family mines to the advance preparation time required for plans
and permits to start a small mine. Moreover, much of the ground
known to contain placer gold has been mined. Furthermore, there
aren't companies drilling new placer reserves.
3:42:52 PM
MR. BORELL then presented some slides of the various mines
throughout the state.
[The audio transmission was briefly interrupted at 3:46 p.m.]
3:48:06 PM
CO-CHAIR RAMRAS inquired as to where the state stands with
regard to education and jobs in the industry.
MR. BORELL recalled that last year there were six mining
engineer graduates, each of which probably received at least
three job offers. He relayed that those in the industry say
that Alaska isn't [educating] enough mining engineers, which is
a common theme throughout the world. He attributed part of that
to the low prices in the industry, which resulted in fewer jobs.
However, now there are more jobs and it's difficult to get
people to focus [on mining as a career].
CO-CHAIR RAMRAS inquired as to what should be done to grow a new
workforce.
MR. BORELL said that to get students into mine engineering will
take encouragement. He informed the committees that he and Mary
have been having conversations with the head of the Department
of Mining Engineering and working on various ways in which to
spark interest in this field. In fact, they are trying to start
educating high school [students] that mining engineering
positions are highly skilled positions. He opined that there's
no greater place to apply computers. He then turned attention
to slides of the Delta Mine training center, which has various
funding sources. He continued showing slides of mines across
the state.
4:04:15 PM
MR. BORELL continued with slides of the mining tour the Alaska
Miners Association recently took in Kamchatka, Russia. The
slides also showed a 15 megawatt geothermal power plant, the
largest in Russia.
4:10:26 PM
CHAIR WAGONER opined that the thread that runs throughout this
presentation is education. He recalled learning at the recent
National Conference of State Legislatures (NCSL) conference the
unwillingness of students in the U.S. to pursue education in
technical degrees such as engineering. The aforementioned is
resulting in the U.S. falling behind worldwide. Therefore, he
encouraged folks to look into a way in which to entice students
into these areas through two-year and four-year programs. He
recalled the petroleum scholarship program that was implemented
years ago [in Kenai]. In the aforementioned program, the
student's tuition was paid by the oil companies while the second
year the student paid his/her own tuition because a full-time
[summer] job was guaranteed if he/she completed the first year
of college studies. Most of those students are now shift
supervisors or higher level employees in the petroleum industry
at the North Slope. Although that program no longer exists,
perhaps such creativity should be utilized to increase Alaska
hire.
4:12:36 PM
DR. BUD FATE, former Representative, thanked everyone for
attending today.
4:14:50 PM
ADJOURNMENT
There being no further business before the committees, the
meeting was adjourned at 4:14 p.m.
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