Legislature(2007 - 2008)SENATE FINANCE 532
03/05/2008 12:00 PM House RESOURCES
| Audio | Topic |
|---|---|
| Start | |
| Presentation: Alaska Mining | |
| 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
March 5, 2008
12:10 p.m.
MEMBERS PRESENT
HOUSE RESOURCES
Representative Craig Johnson, Co-Chair
Representative Bob Roses
Representative Paul Seaton
Representative Peggy Wilson
Representative Bryce Edgmon
Representative Scott Kawasaki
SENATE RESOURCES
Senator Bill Wielechowski
MEMBERS ABSENT
HOUSE RESOURCES
Representative Carl Gatto, Co-Chair
Representative Anna Fairclough
Representative David Guttenberg
SENATE RESOURCES
Senator Charlie Huggins, Chair
Senator Bert Stedman, Vice Chair
Senator Lyda Green
Senator Lesil McGuire
Senator Gary Stevens
Senator Thomas Wagoner
OTHER LEGISLATORS PRESENT
Representative Mark Neuman
Representative Kyle Johansen
Representative Bob Buch
Senator Joe Thomas
COMMITTEE CALENDAR
PRESENTATION: ALASKA MINING
- HEARD
PREVIOUS COMMITTEE ACTION
No previous action to report
WITNESS REGISTER
STEVE BORELL, P.E., Executive Director
Alaska Miners Association, Inc.
Anchorage, Alaska
POSITION STATEMENT: Presented a summary of the current mining
projects in Alaska.
KARL HANNEMAN, Manager
Public and Environmental Affair & Special Projects
TechCominco
Tech-Pogo, Inc.
POSITION STATEMENT: Provided comments.
JIM CALVIN, Partner
McDowell Group
Juneau, Alaska
POSITION STATEMENT: Provided a presentation entitled "Economic
Impacts of Alaska's Mining Industry in 2007."
ACTION NARRATIVE
CO-CHAIR CRAIG JOHNSON called the joint meeting of the House and
Senate Resources Standing Committees to order at 12:10:57 PM.
Members present at the call to order were Representatives
Seaton, Roses, Kawasaki, Edgmon, Neuman, and Co-Chair Johnson.
Also in attendance were Representatives Buch, Johansen, and
Neuman and Senator Thomas.
^PRESENTATION: ALASKA MINING
12:11:23 PM
CO-CHAIR JOHNSON announced that the only order of business would
be an overview of the Alaska mining industry. He asked Mr.
Borell to begin the overview.
12:11:35 PM
STEVE BORELL, P.E., Executive Director, Alaska Miners
Association, Inc., informed members that he would present a
summary of the current mining projects in Alaska. Mr. Calvin of
the McDowell Group would then provide a benefit review of the
mining industry.
12:12:17 PM
MR. BORELL began his overview, as follows:
Starting right off with Placer Mining ... 2007 and
estimated for 2008 - quite similar, more than 100
family mines operating around the state, various
others have permits in hand on a given year. If they
can get their financing together to pay for the fuel
they need and everything else, they'll be out
operating. Production is somewhere over 60,000 ounces
a year. This picture is an operation I visited this
summer on the Seward Peninsula. This was the only
bucket-ladder dredge that operated in the state.
Historically in the Fairbanks district, particularly
and elsewhere, there were dredges of this style that
operated, produced most of the gold for a lot of years
and this is the last one operating. It's a fairly
small dredge. This is a family operation. They've
been - they're operating on private land, patented
land there. They've been mining there since the early
'50s, the Tweets (ph). It's two cousins and their
wives and one or two sons that work and they have to
fly their fuel in and everything but that's the only
bucket-ladder dredge that operated this past year.
12:13:38 PM
MR. BORELL continued:
Another example of a placer mine and the kind of size
footprint that a small placer mine can have, that
entire area on your left has been reclaimed and it's
in the process of being revegetated. You'll see the
airstrip for the particular company there on the right
side; they're current mining off picture.
Major projects around the state - the slide is a
little bit dark but just to give you a picture. Up in
the northwest Arctic, of course, Red Dog and that is
not very clear. ... Those are the projects that we'll
be talking about plus a couple other smaller ones that
- we're talking projects, mines, and exploration
projects all around the state providing jobs all
around.
First the operating mines, to walk through those.
And these are in order of when they went into
th
production. Usibelli Coal Mine is now in its 64 year
of continuous operation. Second was Green's Creek,
followed by Red Dog. They both began in 1989. Fort
Knox began in the 1995-96 timeframe. Pogo in 2006
began and there is one that has operated
intermittently, Dixon Fork out at McGrath, and it
currently is idle but we'll talk about that when we
get there.
12:15:21 PM
MR. BORELL continued:
Usibelli Coal Mine, the largest drag line in the
state, a 35 yard drag line with - you see the drill in
the lower left hand corner and the machine operating.
Some statistics for Usibelli: 100 employees; 100
percent Alaska hire; 40 million tons of permitted
reserves that mean they have permits in hand right now
to mine 40 million tons of coal and they're currently
producing 1.5 million tons per year of which 950,000
[goes] to the Interior for power plants, heating
plants, etcetera; and then another 350,000, 500,000,
depending on the year to Chile and other export
destinations; 270 days without a loss time accident
and various environment reclamation awards over the
years.
Here's a picture to show you - if you come down the
road from the top, underneath the word "facilities" -
very good, I think we have a spotter. Here is the
shop and office complex. The mine is actually back
here. You come hauling the coal. It comes up. It
dumps into a large hopper in that region. Then the
coal is crushed. It goes into a conveyor, comes
across the Nenana River into this storage barn and the
railroad goes underneath that and is loaded out and it
goes to the customers in that fashion.
The Greens Creek Mine 18 miles west of here on
Admiralty Island - at Greens Creek, to give you some
reference, that is the portal to go underground. That
is where all of the ore comes out in large trucks.
The mining is probably taking place down here where
this door is on the side, actually way, way below.
But, nonetheless, the ore all has to come out here.
It crosses Greens Creek. Greens Creek runs right
adjacent to the project, right through here.
Literally the bridge crosses Greens Creek, the ore
stock pile. Here's the mill and the other facilities.
There's the power plant. Here's the shop office
drive. Statistics: 315 employees, approximately 60
percent of those live in Juneau, 79 percent are
somewhere in Alaska; large private sector employer in
Southeast; largest taxpayer in the Juneau Borough;
more than $25 million annual wages in benefits and
more than $20 million in supplies and services.
12:17:59 PM
MR. BORELL continued:
Here's a picture of a roof bolter and to give
perspective ... that's a man standing right there on
that machine. We're talking a large piece of
equipment. This machine is just under $1 million
right now for one of those drills. I'm not sure but
I'm going to guess they have four of those at the mine
site.
Here's the load-out facility. The ore is brought by
truck several miles down. It's dumped inside of this
barn, kept in there out of the weather. It goes
through a conveyor that's covered, onto a ship and
then the ship goes wherever it needs to go around the
world.
Red Dog Mine on NANA Regional Corporation lands in the
northwest Arctic - the largest producer of zinc
concentrate in the world but yet a quite small mine,
as the size of mines go - the concentrate is hauled
from the mine site 55 miles on this road. This is, I
call it the Red Dog port site, but this is the Delong
Mountain transportation system. That system is owned
by AIDEA. It is operated by the company. TechCominco
have their employees operating it. Here you see the
largest building in the Arctic and right behind it
barely visible is the second largest building in the
Arctic. The largest one is 225 feet wide by 1500 feet
long. Those are the storage buildings where the ore
is brought. It is stored here across the winter, so
it is hauled all of the time and then the ships can
come in.
12:19:52 PM
MR. BORELL continued:
The ships cannot, however, if you see on the screen,
here's the load-out, the ships cannot get into that
location and so they're using a lightering system.
There you see the barge; in this case a FOSS barge
lighters the ore out to the ship in deep water several
miles offshore. This was a beautiful day. It's not
always quite that nice to go out into the Bering Sea.
Red Dog statistics for 2007: 465 employees and full-
time contractors; 56 percent of those people are NANA
shareholders; $48 million in annual wages and
benefits; $82 million with 13 different NANA joint
venture contractors, including folks that do the
hauling of the concentrate from the mine site to the
port, that kind of thing.
In 2008 one of the major projects that the company is
going to have is nearly a $9 million drilling program
for natural gas. The cost of fuel in the villages of
Alaska and, of course, in Red Dog and other mines is
astronomical. The folks at TechCominco have been
working for several years to find the gas, develop the
gas resources that they may have locally right there
in their own areas.
12:21:09 PM
MR. BORELL continued:
This picture shows the Aqqaluk extension project.
Again, up here to give you reference, we're looking -
this arrow shows where north is and so here are the
existing facilities and this is the main pit. This is
where they've been mining since 1989 - this area right
here. It looks large but it's - when you compare it
to other large mines in the world, it is not a large
pit. Let me point out something here. ... This is Red
Dog Creek. I recall when the - this is a lined creek.
I recall when this was built. It was $12 million to
build that diversion ditch. It's a fully-lined ditch
and the purpose of that is to take the fresh water
that's falling off the map up on the hillsides and
catch that water and bypass it around the mine site so
that it does not affect it at all by the lead and zinc
and by any acid potential rock drainage.
The project that's being permitted right now that they
need, I think we're talking right around 2011. I
believe the time period is they need to be mining
across Red Dog Creek in this lock deposit. That's
where they'll go next. Some people would call it an
expansion. It is not an expansion. It's an extension
just to keep the mine running right there and keep the
jobs in place there at this point.
12:22:48 PM
MR. BORELL continued:
A major, major issue for the people of the northwest
Arctic and for TechCominco and, for that matter, for
all the companies is protecting the subsistence
lifestyle. Here you see - now we're looking basically
from the west across this hill. There's the mill and
the mine is in the background but here's just an
example of the caribou nonchalantly walking along
eating close to the mine.
One of the things that we would fully expect the
Legislature to be very interested in is the kind of
local taxation that mines can provide. This is the
Noatak School. This is the sixth school in the
district in the northwest Arctic that is under
construction now. Five have been completed. This is
possible, in part, because Red Dog Mine is there.
This school was at 250 percent of capacity before, and
I don't think they are in the building yet actually
... so here's a $40 million school that is being built
at Noatak, in large part thanks to the fact that Red
Dog Mine is in that district.
12:23:58 PM
MR. BORELL continued:
One last piece on TechCominco - when you see the gold
medals and the silver medals and the bronze medals go
to the Olympics in 2010, you need to know that there
are Alaska metals in those medals that go around those
guys' necks. TechCominco, very exciting to see that
they're going to be providing the medals for the
Olympics.
Fort Knox Mine up, of course, at Fairbanks. In the
picture the actual mining area is over here. Their
main crusher is there - conveyor belt. This is the
mill facility and the leach train, the tanks where the
leaching takes place. This is the shop and office
warehouse area. This is tailings impoundment. Up in
this valley is where the heap leach has been permitted
and is in construction right now.
12:24:55 PM
MR. BORELL continued:
Statistics: 400 employees; no lost time accidents
during the year; $38 million in wages and benefits;
$28 million for electricity. I was reminded talking
with someone this morning that the people in the
Fairbanks - Representative Kawasaki ... is it still
the case that it's still in their bills that shows
them how much they are saving because Red Dog is in
place? At one time that was on people's bill, it was
showing and it was like 7 percent, I believe, for a
residential and 10 percent for [business] so, anyway,
yes. The fact that Red Dog Mine had a base load of
electrical generation there helped everybody in the
community very, very directly in their pocketbook.
Fuel costs about $15 million. Heap leach permits were
received. The mine life extended to 2014.
This is the same slide that I had last year with the
exception that I added 2007, another year without a
lost time accident and we're talking 400 plus people.
That's a significant milestone.
A couple of other things about Fort Knox. They poured
their 4 millionth ounce of gold in January of 2008.
Also in February this last month they recertified.
There is a certification program, International
Cyanide Management Code. They were certified under
that code this past year, a very significant
milestone. The companies have to meet some
international standards and it is not an easy thing to
do. So we congratulate them for that. The heap leach
facility is under construction at this point. Phase 7
of the open pit expansion is in place. This year they
expect an $84 million capital budget.
12:26:58 PM
MR. BORELL continued:
Pogo underground mine northeast of Delta Junction, in
this picture we're looking up - this is the
Goodpasture River coming below. The original portal
is over here. These numbers reference the elevation
of the portals. The 1525 portal was the exploration
portal. The road that comes from the Richardson
Highway comes across. It crosses the Goodpasture
River right down to this part here. The actual Pogo
Ridge - the mine is underneath this area - the gold
mining is taking place and then you have the
conveyors. One of them comes out of this portal and
there is the mill and the camp shop and those things
over here on the side - the airstrip. A quite compact
mine site yet still covering quite a few acres.
Here's an underground truck.
MR. BORELL continued:
Pogo statistics: 300 employees and contractors, 100 of
those people are underground miners, a specific job
class, and underground miners. They achieved
commercial production in April of 2007 and in 2007
they produced 260,000 ounces. That's compared with a
budget - their goal was 340,000 but equipment problems
and other things at the site, ground control issues,
they didn't make it. Their forecast for this year is,
again, 340,000 ounces.
This is the water treatment plant. I recall ... this
one facility, a huge water treatment facility to
process all the water before it's discharged - Dixon
Fork - sorry for the darkness of the slide there.
Dixon Fork right now is not operating. It is idled
but during the first three-quarters of 2007 it
operated, they had 61 employees, 9 percent of which
were Alaska hire, 20 additional contracted staff and
there's their payroll and supplies and services. They
currently have 26 people on site. Their underground
definition, ore definition drilling to identify where
the ore is and, in the picture you can see the bottom
of the airstrip in the center of the picture, that's
just the departure and basically - and then tailings
impoundment, fully lined. The tailings impoundment is
right here. Here's the mill site. The mine is
actually right under that location and here's the
camp.
12:29:58 PM
MR. BORELL continued:
Okay. Mines that are under construction right now and
the reason we broke it out in this fashion is people
hear these different names and they think well we've
got all of this mining going on. We only have five
large mines in the state operating right now but we
have tremendous opportunity for the future. Two
projects that are not yet in operation but are under
construction, Kensington and C'oeur Alaska just north
of Juneau here and Rock Creek at Nome. This is
looking up Berner's Bay. Haines is right off there.
The actual valley where the facilities are located is
right up here. Here's the port site where the people
will come in, just like from Green's Creek. They'll
come in on a boat, take a van up to the mine site....
There's what the facilities look like right now and
their construction is 100 percent complete for the
mill and crusher buildings. They have a - it's a
15,400 foot tunnel that goes through the mountain over
into the ore body and comes out on the Lynn Canal
side. Underground mine workings are complete. They
are in place. They are ready to go to work. The dock
at Slate Creek Cove, which we saw on the previous
slide, is in place and [indisc.] facilities are all in
place. These are the power units right here for the
mill - power plant units, and the actual portal is
just back here right in the shadow.
One item remains and that has to do with tailings
placement. There are two approaches, two alternatives
being followed at the same time. Permitting is in
place right now. It has begun for a new tailings
approach but secondarily an appeal is to the U.S.
Supreme Court right now. There is no guarantee that
the current permitting approach will indeed be
successful and so the company has no choice but to go
ahead and appeal the decision of the Ninth Circuit to
the Supreme Court.
12:32:09 PM
MR. BORELL continued:
Permitting schedule needed to allow 2008 operations:
January 2008 - submitted modified plan of operations,
February 2008 - submitted other applications to the
Corps, EPA, State and City and Borough of Juneau. And
then we hope by the end of this month to have a
decision on the NEPA direction that the project needs
to take from the Forest Service followed by a decision
in April by EPA and the Court to modify the existing
permits. September - authorizations to initiate
construction in October begin, whatever the facilities
are that are going to be required for the tailings
construction then. That's what they very much hope
the schedule will look like.
Rock Creek Mill under construction at Nome. This is a
picture that I took in August. I was out there. They
were just in the process of closing up the walls on
the mill itself. Some statistics: 135 employees once
they're in operation; an annual payroll ... of $10.4
million in a remote part of Alaska; $220.6 million
annual supplies and services similarly.
Okay, projects that are in advanced exploration or
permitting. The advanced permitting alternative is
Chuitna Coal, PACRIM Coal is the company. This is
right across from Cook Inlet. We'll see it in the
slide and then the advanced exploration projects -
Donlin Creek, which is a Barrick Nova Gold joint
venture, and Pebble partnership, which is a Northern
Dynasty Mines Anglo-America joint venture.
12:34:02 PM
MR. BORELL continued:
The Chuitna Coal Project - the investment the last
time I showed you this slide, they thought their
investment was $450 million and it's up to $600
million now. That is, I'm sure, a reflection of fuel
costs in one case and steel, but the prices of coal,
the prices of metal are increasing but the cost to
mine is increasing significantly also.
The mine will be 12 million metric tons (MMT) per
year. That's what that means: 12 million, then MTPY,
metric tons per year capacity. They have 300 metric
tons in this thing they call their logical mining unit
number one. That's 300 million tons in that little
block of area. Infrastructure - a 12 mile access road
and conveyor and on the map you can see here comes the
road and conveyor down this way, 138 KV power line
coming across, personnel housing and an airstrip.
Then down at the coast, Ladd (ph) Landing, a logistics
center, export terminal and a trestle about 10,000
feet long out into Cook Inlet to load Cape class
vessels, meaning the largest vessels in the world, 60
foot draft.
Just one thing here - here's where their permitting is
at the bottom. That long acronym stands for Alaska
Surface Coal Mining Control and Reclamation Act
permit. That's what that long series is. Public
review process - they project it for fourth quarter
this year. Similarly with the draft supplemental
impact statement, I would have you recall that this
project was permitted about 15 years ago. It went
through an EIS and so this is a supplemental to bring
things up to current from where it was at that point;
projected approval - late 2009.
12:36:33 PM
Donlin Creek - Chulista Lands out in the middle
Kuskokwim. There you see the 150-man camp facility.
The initial mining area would be right over in this
vicinity. Donlin Creek update - 2007: eight drills
completed 70,000 meters of drilling; 94 percent local
hire; over 300 shareholders and descendents were
employed at the project site; no lost time accidents
and, again, that's a phenomenal kind of thing to be
able to say for a large, diverse project; completed a
draft feasibility study and then, of course, during
the year Nova Gold and Barrick formed Donlin Creek
LLC, a joint venture. In 2008, a major focus is
looking at electrical power options, this is a huge,
huge issue; optimizing the feasibility study; the
draft feasibility study; another 21,000 meters of
drilling, hopefully completed by May; optimizing plan
design; mine plan facilities, etcetera; and continuing
the environmental work, some of which has been ongoing
first began 10 years or so ago.
12:37:38 PM
MR. BORELL continued:
This is an exciting drawing, exciting picture. It
shows, and actually this shows the 2006 villages, 23
villages in the Lower Kuskokwim that were represented
by people working at Donlin Creek in 2006. In 2007
they had 35 different villages represented in the area
that worked at the project site and I continue to come
across people all around the state that are just so
excited to have a major mining project like this in an
area where there are so few jobs, so few private
sector jobs. This has just been a tremendous thing
for the area.
Pebble Project - this is one of the large drills that
will drill to 6,500 feet. This is an incredible
drilling operation that is ongoing right now.
Investment to date over $220 million, $87 million of
that has been on environmental and socioeconomic
studies. In 2007, approximately 700 individuals and
50 consultants active, more than 80 percent Alaska
hire, 150 residents of 16 different villages
throughout the Bristol Bay region have worked at the
project site. I'm not sure what the number is today
but I know they are ramping up to even more. In 2008,
and first off I don't see a number from last year, but
I recall the number was $87 million, was the capital
expense last year. This year we're looking at $125
million for that project. That's their forecast, 10
drills drilling to 6,000 foot depths. Ongoing
environmental, social and economic and, of course, the
Pebble Fund that has just been announced here
recently.
12:39:50 PM
MR. BORELL continued:
Okay. I want to touch on three other projects
through, briefly, what we'll call early stage
exploration and one of the things that Jim Calvin will
talk about when he follows me is there were 29
projects in Alaska that spent over $1 million each
last year. That is a significant increase. I believe
it was 23 projects last year and before that it was -
I mean in 2006, 23 or something and then tapering off
beyond that. Three of the projects I'd have you look
at: Niblack, Full Metal Minerals, and International
Tower Hill Mines. These are not unique but these are
the biggest ones, if you will, of those that are right
now in this category of grassroots.
This is Niblack, which is right across on the south
Prince of Wales Island. What you see in the picture,
you see a cross section of the mountain. This Lookout
Mountain, for years it's been drilled and they've
spent $20 million since 2005 here but they've had to
set their helicopters, bring their people up and then
drill to get down into these areas from clear on top
and so it's very difficult drilling, much farther
distances of drilling than what you'd like to do and
so this year what they began - they began it last year
actually. They collared a portal right here and they
are driving a 5,000 foot adit into this zone and...at
various places along here they'll set up a drill
station and then from that location then they'll drill
up and down and off into the ore zones to explore it
to see what it's like.
The real exciting project - this is potentially
another Greens Creek style of mine. Now, is it big
enough? Is there enough ore there for it to be
economic? The company believes it makes enough sense
to continue at this point, but it's exciting to think
that we might eventually have another Greens Creek and
especially in support of the people and the pain that
the people of Ketchikan have gone through over the
years. It is incredible to see a significant
potential development there. This year they're
looking at $15 million; 35 work crew on-site; they'll
be drilling underground throughout the year.
12:42:36 PM
MR. BORELL continued:
Another company to tell you about a little bit is Full
Metal Minerals. Full Metal has 11 project areas
around the state. This year they project having 8
drill programs. They have budgeted $17 million into
those locations. ...On the page it lists out all of
the different projects around the state. You can see
their names but I'd highlight one of them called the
Fortymile. It's on Doyon lands. They expect this
year 15,000 meters of drilling. The budget for that
project out of the $17 million for that project alone
is $6.5 million, 24 to 30 workers depending. It's on
Doyon land and within the Fortymile area, if you will,
that area - and I'm talking an area maybe 20 miles
long by 5 miles wide - they have seven prospects
they're going to be drilling on in that area.
12:43:44 PM
MR. BORELL continued:
Another junior mining company spending a lot of money
in Alaska in 2007, 75 percent Alaska hire, over $4.5
million was spent with Alaska companies. They paid
state and other land owners $577,000 and you'll note
that in 2008 they are looking at 10 prospect areas.
That includes some Mental Health Trust lands. Some of
them are on state claims. Some of them are on private
Native and other private lands. Budgeted this year at
Livengood alone, if you look in the picture upper
left, this is the Dalton Highway coming past. So, in
a state with so little infrastructure to find an ore
deposit that close, and it's hard to see it on here,
this is the area that's highlighted over here on the
map, this map area is right there, to find a potential
project site that is so close to infrastructure is
just tremendous so we're very optimistic, very hopeful
that that becomes the case. They believe this looks
something like a Fort Knox type of mineralization so
if that can be made economic, that's great. ... This
is a geologic map showing the two primary target areas
that they have and they're budgeting $7.5 million for
Livengood this year.
With that, I will turn this over to Jim Calvin of the
McDowell Group. Afterwards I and others will be very
willing to answer any questions you have.
12:45:54 PM
REPRESENTATIVE SEATON asked where the Two Bull Ridge mine is
located.
MR. BORELL answered Two Bull Ridge is the current mining area at
Usibelli located on the north side of the main Haul Road. He
added Usibelli is finishing up reclamation work at Poker Flats.
REPRESENTATIVE SEATON asked if Two Bull Ridge is a coal deposit.
MR. BORELL affirmed that is correct.
12:46:49 PM
REPRESENTATIVE NEUMAN asked whether it is true that mining
companies do not pay a lot of production taxes because the mines
are not located on state land.
MR. BORELL affirmed that is correct and said Mr. Calvin would
address that topic. He then elaborated:
... Right now, for example, we have one coal mine on
state land and we have one gold mine on state land.
The gold mine is Pogo. We have one gold mine that is
on Mental Health Trust lands, which is a type of state
land but, first off, we only have five large mines
and, as you'll see from the work that McDowell put
together, they're paying a huge amount and we're
pleased with that. We love to see that. That's very,
very good but you're correct in part that the biggest
issue of all is we are in a state that has a
tremendous mineral endowment. We should have 55 mines
now, not 5 big mines. We should have 55. We should
have mines in every corner of this state and I fully
believe that within 50 miles of every village, every
hamlet, there should be some kind of a mineral, it may
be rock, it may be gravel, it may be peat, but there
has to be something that can be mined and providing
local jobs for the people in those areas.
12:48:40 PM
SENATOR WIELECHOWSKI referred to recent television
advertisements that say some of the initiatives [on next year's
ballot] will stop the mining industry. He asked Mr. Borell if
he believes that to be true.
MR. BORELL said absolutely yes. The initiative will stop new
mines from operating, as well as the Red Dog Mine.
SENATOR WIELECHOWSKI asked him to explain how.
MR. BORELL deferred to Mr. Hanneman to explain.
12:49:36 PM
KARL HANNEMAN, Manager, Public and Environmental Affair &
Special Projects, TechCominco, told members the mining industry
is very concerned about the effect of the initiatives on the
industry, including the Red Dog Mine. He referred to the
Aqqaluk deposit adjacent to the Red Dog Creek, which is
currently in the permitting process, and said the initiatives
preclude the storage of waste rock in proximity to a creek. It
will be impossible to meet that prohibition. The initiatives
also prohibit any discharge of water, even tap water. Those are
drastic measures that the mining industry will be unable to
comply with. The initiatives apply to new facilities and
expanded facilities so they could close the Red Dog Mine
project.
12:51:08 PM
REPRESENTATIVE ROSES asked if all existing mines have to renew
their permits every three or five years and apply for permits to
modify their original plans.
MR. HANNEMAN said that is correct and noted the renewal process
is every five years, including independent third-party audits.
That is why the mining industry is very concerned that the
initiative applies to new and existing projects.
12:51:59 PM
SENATOR THOMAS suggested that a sectional-type analysis of the
initiatives would be helpful to legislators so that they have a
better understanding of the effect of each section of each
initiative.
MR. HANNEMAN noted his appreciation for that suggestion. He
opined that [TechCominco] might be able to use information from
a recent judge's decision that found [the initiatives] to be
unconstitutional. He acknowledged that decision must be
affirmed by the Alaska Supreme Court.
12:53:36 PM
REPRESENTATIVE SEATON surmised that Mr. Hanneman believes the
Clean Water 1 initiative and the Clean Water 3 initiative will
have the same effect on mining in Alaska.
MR. HANNEMAN said he believes those two initiatives are very
different and the judge found them to be very different.
However, the [intent] of both initiatives is to provide
prohibitions against storage of waste rock and other things.
The mining industry is very concerned that if they are
interpreted to prohibit storage, that will result in a shutdown.
The judge's opinion speaks to "adversely affect." TechCominco
is studying that opinion to determine what that will mean if the
initiatives pass.
12:54:51 PM
REPRESENTATIVE ROSES noted that Greens Creek sits right next to
a creek, as does the Red Dog Mine. He asked about the history
of water contamination at those sites.
MR. HANNEMAN said the water quality at Red Dog Creek is much
better now than it was prior to the mine's inception. He said
he is not familiar with the Green's Creek situation but believes
it has an exemplary record.
12:55:49 PM
JIM CALVIN, Partner, McDowell Group, told the committees the
McDowell Group is a research firm that has been in business in
Juneau since 1972. He noted this is a particularly exciting
time for the mining industry so he is glad to have the
opportunity to discuss the McDowell Group's 2005 comprehensive
assessment of the mining industry done and its update, entitled
"Economic Impacts of Alaska's Mining Industry in 2007." He
began a PowerPoint presentation, as follows:
I will start with some employment impacts. Steve gave
you a great deal of detail on individual projects.
What I'd like to do is roll it all up and talk to you
about what it means in terms of overall economic
impacts.
We can point to 3500 jobs in the state that are
directly attributable to mining industry activity.
This includes jobs that are created in the mines that
Steve described to you. It also includes jobs
associated with about $275 million of exploration
activity statewide last year, about $275 million worth
of mine development activity last year. It also
includes jobs associated with industrial minerals
development, which of course is integral to all
construction activity in the state. That's just the
direct employment in the industry. If you consider
the multiplier effects of that activity, all of the
indirect and induced impacts, we can point to about
... 5,500 jobs statewide that are related to Alaska's
mining industry. Those jobs generate an estimated
total of about $340 million in annual payroll. All of
these numbers are about 20 to 25 percent higher than
where they were in 2004 at the time of our last study.
12:58:51 PM
MR. CALVIN continued:
Also, I think [it is] particularly noteworthy to
indicate that the average annual salary in the mining
industry is about $80,000 a year, which is about twice
the statewide average for the economy overall. The
mining industry generates the highest average wages in
the state, right behind the oil and gas industry.
With this - I don't want to focus too much on the
details on this image. What this shows, though, is
the geographic distribution of the employment
associated with the mining industry. These are the
home towns of people that are employed in various
mining projects, exploration projects, development
projects around the state. Clearly it's broadly
distributed all across the state. In fact, there are
120 different communities that have folks living in
them that are employed in the mining industry. I
should also add that if we were to overlay on this,
all of the people that benefit from royalty payments
that are shared via the 7(i) provision of ANCSA, you'd
have virtually every community in the state seeing
some financial benefit associated with mining industry
activity in Alaska.
12:59:42 PM
MR. CALVIN continued:
I think this was certainly the most interesting
finding from our update of our earlier study. This
basically summarizes state and local revenues stemming
from mining activities in Alaska. In 2004 we could
identify roughly $25 million in state taxes, fees, and
local property taxes that were directly related to
mining industry activity.
Well, our latest estimates for calendar year 2007
suggest it is now up to about $185 million. The
largest increase in this area has come in mining
license taxes and corporate income taxes paid by
mining companies. I'll talk in a little bit more
detail about these.
Let's first look at some of the local government
impacts. Steve alluded to a few of these numbers in
his presentation but the point is that the mining
industry is a critical source of tax revenue for
several jurisdictions around Alaska, not the least of
which was the Northwest Arctic Borough, which last
year took in about $9 million in payment in lieu of
taxes from the Red Dog Mine operations. The Fairbanks
North Star Borough enjoys about $3 million in taxes
from Fort Knox Mine operations. Fort Knox is
alternately either the first or second, I think
currently the second largest property taxpayer in the
Fairbanks North Star Borough. The City and Borough of
Juneau benefits from about $1 million in annual
property tax payments from the Greens Creek Mine.
Greens Creek is currently Juneau's single largest
property taxpayer. Once Kensington is up and running,
hopefully this time next year, they will assume the
position as the single largest property taxpayer in
Juneau and Juneau's top two payers of property taxes
will be in mining operations.
There are a range of other instances where the mining
industry contributes to local government coffers,
including a $500,000 payment in lieu of taxes to the
City of Delta Junction from the Pogo operation.
1:01:51 PM
MR. CALVIN continued:
Payments to state government, this is where the big
increase has been since our last assessment and now
totaling about $175 million. That includes $85
million in mining license taxes, a huge increase over
the last few years, $80 million in corporate income
taxes, $8 million in various rents and royalties and a
couple of million dollars in other various fees,
payments, taxes. As we stand today, the mining
industry is the second largest contributor of revenues
to state government, behind the oil industry of course
but above tourism, above the seafood industry. I also
should note that the mining industry accounts for
about $15 million in revenue for the Alaska Railroad.
That's about 16 percent of the Alaska Railroad's total
freight related revenues. As Steve indicated, there
is mining activity on Mental Health Trust Lands and
last year that generated about $1 million in revenues
for the Mental Health Trust.
Finally I'll talk briefly about some of the rural and
Native corporation benefits. I indicated earlier that
there is substantial ANCSA royalties distributed
statewide. Early estimates suggest that total
royalties paid to NANA, the owners of the property at
Red Dog, will be in the neighborhood of $170 million.
Now what's interesting about that is, as a result of
the 7(i) provisions of the Alaska Native Claims
Settlement Act, 70 percent of that money is
distributed amongst the 12 regional corporations.
That money then is further, according to 7(j)
provisions of ANCSA, distributed to village
corporations. So here's mineral industry revenue
generated in the far northwest of Alaska that
literally is flowing to every corner of Alaska and
some of this money has been a critical source of
revenue for village corporations.
Again, Steve alluded to how important employment
opportunities are for rural residents of Alaska.
We'll point to a couple of examples here that over
half of the 465 jobs at Red Dog are held by NANA
shareholders. 90 percent of the 200 jobs at Donlin
Creek are held by Chulista shareholders. Most
recently here in Juneau over half of the construction
labor force at the Kensington project were Native
affiliated so, an important source of jobs and income
for rural residents, Native corporations and their
shareholders.
So, take home points from all of this. Dramatic
increase in state revenues recently associated with
mining license taxes and corporate income taxes. The
mining industry continues to play and is playing even
a more important part in several local jurisdictions
in terms of property tax generation. The industry is
growing in terms of its employment impact and,
finally, the economic impact will, in terms of
employment and royalty sharing in virtually every
corner of the state. That's it and I'd be happy to
answer questions you might have. Thank you.
1:05:08 PM
CO-CHAIR JOHNSON said a university study on the number of jobs
created from capital investment showed that every $100 million
in capital generated 60 to 70 jobs throughout the economy. He
asked if the mining industry may exceed that average.
MR. CALVIN said he believes that is true. For example, the
Kensington Mine will invest over $200 million, with total direct
and indirect jobs in the neighborhood of 370. In terms of
investment dollars, the mining industry shows a pretty high
return in terms of employment. It is labor intensive and pays
very high wages. Also, because it is capital intensive, it
generates substantial property tax revenues.
1:06:24 PM
REPRESENTATIVE NEUMAN asked what type of economic multipliers
can be assumed off of the funds and whether they are consistent
throughout the state.
MR. CALVIN replied multipliers vary among industry and location.
For example, a mining industry payroll dollar has a lower
multiplier effect in a place like Kotzebue because it does not
have the services and supplies available in an urban area. The
McDowell Group is currently assessing the economic impact of Red
Dog royalties on the state, the Northwest Arctic Borough and on
Kotzebue as part of the Aqqaluk EIS project. He continued:
There certainly are different multipliers depending on
where in the state you are and there are different
multipliers - there's spending and then there is
spending. Payroll spending almost immediately for
Alaska resident employees in the industry - that's
pumped almost immediately right back into the economy.
Spending on goods and services might be different.
For example, if you're buying equipment to support a
mine that may not have quite the multiplier effect
because none of the equipment that operates in a mine
is manufactured in Alaska, so that has a different
multiplier effect.
1:07:57 PM
REPRESENTATIVE NEUMAN asked if the overall multiplier is in the
vicinity of 2 to 4.
MR. CALVIN said the multiplier is about 1.5 in rural parts of
Alaska so that every two jobs created by the mining industry
create a third job. The overall statewide economic impact would
be two mining jobs create a one-quarter time job. Multipliers
are not in the 3-4 range because explosives, drill steel and
heavy equipment are not manufactured in state.
1:08:48 PM
REPRESENTATIVE ROSES noted that the mining industry is
contributing a considerable amount of money to workforce
training and asked whether that figure is included under goods
and services in the McDowell Group study.
MR. CALVIN said yes, however what is not captured is the long-
term benefit that the training has provided. Exploration
projects come and go but the training skills transfer to other
industries, such as construction. It is very difficult to
determine the number of people who have benefited from being
employed in the mining industry at one point in time.
1:09:58 PM
REPRESENTATIVE ROSES asked Mr. Calvin to separate that data out
in the study because the Legislature has spent a tremendous
amount of time and energy on workforce development, particularly
with the gas line project. That data would show the amount of
money being spent and the percentage of those folks that work in
that industry.
MR. CALVIN said he thought that was a good idea and said
additionally, mining company contributions to various non-profit
agencies are very important to the economy. He told members
what is not obvious when looking at the 5,500 mining jobs in the
state is the diverse mining related contributions, which filter
through the entire economy.
1:11:40 PM
CO-CHAIR JOHNSON acknowledged that Mr. Calvin's study was done
for the mining industry so any further work would be done at the
industry's request. He asked Mr. Borell to note the committees'
need for further information. He then asked Mr. Borell whether
he believes the initiatives would have more of an impact on the
Red Dog Mine or the Pebble Mine and to walk the committee
through whether an existing mine would be impacted more.
MR. BORELL said he believes without a doubt that the initiatives
would shut down both existing and new mines.
1:13:23 PM
CO-CHAIR JOHNSON asked if the Pebble Mine is in the process of
discharging water, which would be prohibited under the
initiative.
MR. BORELL said the real issue is not water. He explained:
This is part of the deception of these initiatives.
These are not about water. These are about stopping
mining and, as Carl delineated awhile ago, you can
stop it by not allowing waste rock to be put within
1,000 feet of any stream. That would shut down
several of the mines we've just seen the pictures of.
You can do it by the total disturbance area. If it's
over 640 acres - broken record, you can't do that.
That will affect the small placers also, small family
mines in some cases. So it's not really water. It's
far more than that.
CO-CHAIR JOHNSON asked Mr. Borell if he had any wrap-up
comments.
1:14:23 PM
MR. BORELL pointed out, in response to the workforce development
questions, that many of the 300 Donlin Creek employees in the
Kuskokwim area were trained on-site or in their villages. In
addition, local people are currently being trained to work at
the Pebble Mine project. He pointed out that mine workers must
be drug and alcohol free. Without a no-drug policy, the
liability costs would be too high to operate. He noted that
policy is having quite a positive impact on young people in the
villages.
CO-CHAIR JOHNSON commented that he has always believed the best
way to keep people drug free is through employment.
1:17:15 PM
REPRESENTATIVE SEATON asked if any information about the value
of the minerals at the mines is available.
MR. BORELL replied the annual state report provides the total
value of the minerals produced. The price is based on the
assumption of the average market value.
1:18:40 PM
CO-CHAIR JOHNSON asked:
I want to clarify that. So when we say there is x
number of dollars of processing of gold in the state,
that's a finished bar process? That doesn't include
the processing to get to that standard so that's the
value that they look at?
MR. BORELL explained that the state report lists three
components of value. The first component is how much money the
companies spent out of pocket to do exploration work. The
second component is development, which is the money spent on
facilities once the project is deemed economically viable. The
third component is the value of the minerals based on the amount
of mineral produced times the average annual price of those
minerals. Therefore, that value is not what the industry
receives, but rather a measure of the value.
1:20:13 PM
CO-CHAIR JOHNSON said that is similar to saying the value of the
salmon that comes out of Alaska is the same as the price charged
for a filet in the Seattle fish market.
MR. BORELL said that is correct.
REPRESENTATIVE SEATON asked if the net smelter return value is
reported.
MR. BORELL said it is not. This value is defined by taking the
amount of metal produced by the average world price.
1:20:52 PM
REPRESENTATIVE NEUMAN expressed concern about adding value to
Alaska products. He pointed out with the new rail spur to Port
Mackenzie, gypsum board can be manufactured in the Fairbanks
area. He said many container ships arrive in Alaska full but
leave empty. He asked Mr. Borell to address the possible
expansion of value added products.
MR. BORELL said the extension of the railroad to Point Mackenzie
will be great. He thought it will be important to the wood chip
business in the Interior at the moment. He stated the timing to
get minerals on the railroad is significant. At this point, no
one is assuming the railroad will be there so it is not being
factored into economic plans. It will be a huge benefit for all
of Alaska.
1:22:26 PM
REPRESENTATIVE WILSON commented that the cost of energy differs
at every mining operation. However, a mine located close to a
road could mine for lower grade minerals because [transport]
expenses are lower.
MR. BORELL said each project differs significantly and that he
concurs in general with Representative Wilson's statement. He
said the lack of infrastructure in Alaska has kept companies
from exploring here. He noted he was at a conference in January
in Vancouver at which many speakers with projects in British
Columbia discussed the extent of British Columbia's
infrastructure. Proximity to a road is a huge factor. Mining
almost always pays for its own infrastructure. He said although
AIDEA made the infrastructure investment at the Red Dog mine,
Cominco guaranteed payment of a certain amount annually.
Cominco has now paid over $250 million for the use of that
facility.
1:25:20 PM
REPRESENTATIVE EDGMON said the one issue that has not been
touched upon today is that if large scale mining becomes more
prevalent, environmental issues will crop up. In addition,
climate changes are occurring. He continued:
I guess what I am trying to say is that mining reform
is on the horizon here in Alaska at some point. When
I say reform I don't mean take the mining industry and
do what the clean water initiatives purport to do and,
in fact that is what they do, shut down the industry
because I think that would be blatantly unfair and
unwarranted. But reform in the sense that the laws -
the [indisc.] reclamation, the taxation regime, all
that catches up to where the industry is in terms of
its development and exploration in Alaska is sort of
on line with the 30 days that we spent with the oil
industry last fall here in the halls of the Capitol
here.
So, having said all that, you may disagree with that
point but, I guess two questions. Number one is, is
mining reform on the horizon from the association's
perspective? And, if it is, is the association going
to be a willing player to make sure it is done so that
the investment climate and the regulatory climate is
fair to the industry, as well as fair to the state and
its interests?
1:27:16 PM
MR. BORELL replied the association will be involved in whatever
takes place. He said he partially disagrees with Representative
Edgmon's perspective and continued:
We have today what I would call a very progressive
taxation policy and, again, remember we only have five
mines, only two of which are on state land. An
example that I like to give is Greens Creek in 1993
shut down. They reopened about 18 months later. If
there had been a different tax regime in place instead
of a net tax, Greens Creek I can guarantee you would
have shut down sooner and those people would have lost
their jobs sooner and it would have been shut down for
a longer period of time later. It's a fact that
during that shut down period, Kennecott and Hecla
looked strongly at whether or not they should even
reopen the mine at all. They did a significant amount
of additional underground drilling during those 18
months and they discovered the Southwest ore deposit,
which was significantly deeper, and they made the
decision and thank goodness they did because they
could have reclaimed that mine. They could have shut
that mine down in the mid-1990s but they didn't. They
kept at it. If there had been a different kind of a
tax regime in place, a gross tax for example, an NSR,
which is a gross tax, if that had been in place, we
may not have Greens Creek today and the City and
Borough of Juneau may not have its largest taxpayer
today.
So we need to look at every single one of those pieces
very, very carefully if somebody is going to propose
changing those because we have a tax regime in place.
We have one that many, many companies have looked at.
They've watched Alaska. They've said hey, the mineral
industry has a ... secure, in place permitting system
and taxation system in place - I mean the state does
at this point and they've been here investing because
of that and to now pull the rug out from under them I
think the Legislature would be wise to consider that
very, very carefully before they did something like
that.
1:30:17 PM
REPRESENTATIVE EDGMON said a tremendous amount of energy is
required for mining development. He asked what the industry is
doing in the face of the challenging energy requirements to get
to the development stage.
MR. BORELL said Barrick and other mining companies are looking
into wind generation and nuclear power as part of a power mix.
The City of Galena's work is being watched [but is not timely
for current mine development]. Companies are scrambling,
looking for every possible alternative. He furthered:
A real significant advantage that the Cook Inlet basin
has right now is for use of the coal and the
sequestering of the carbon dioxide and using it to
then pressurize the structures for further oil
recovery. It looks, and at the same time so you
gasify the coal, you need a power plant for the Agrium
- to go with the Agrium plant. They would then have a
feedstock for their products and there would be a
power plant there that would have excess capacity so
that could help provide some of the power, which of
course is right on the grid. The carbon dioxide
that's left over afterwards could be put down in Cook
Inlet basin. To me it's a win-win-win. Whether or
not than can go forward, we'll see.
1:33:19 PM
CO-CHAIR JOHNSON noted his agreement, as mentioned earlier, that
in most cases the mining industry pays for its own
infrastructure. He said he is looking at high lines to feed
some of the rural communities and take some pressure off from
diesel generation. He likes the idea of being able to ship
power generation to the communities, as well as to the industry.
He asked Mr. Borell what the total power consumption is for the
mining industry.
MR. BORELL said he will take a look at that.
1:34:24 PM
REPRESENTATIVE WILSON asked how Alaska compares to other states
in terms of its environmental regulations being more or less
restrictive.
MR. HANNEMAN said the umbrella over all mining activity is the
federal NEPA (National Environmental Protection Act) process.
However, within that the state has developed its own permitting
process. The technical review and scientific analysis are
managed cooperatively by both. The rigor applied is determined
by the federal umbrella. The state coordinates the state and
federal processes to minimize duplication and improve
communications. The State of Alaska's process is good in that
regard but it is still rigorous.
1:36:36 PM
REPRESENTATIVE ROSES asked for more information about possible
gas production at the Red Dog Mine.
MR. HANNEMAN replied:
Just related to the geology in the area, there's a
potential for shale gas. The geologic formations are
not very conducive to producing gas but we know it's
there and it's worth the test. There is an ongoing
program underway to test the viability of developing
the gas that's known to be in the shale in that
surrounding area.
1:37:22 PM
REPRESENTATIVE ROSES asked whether the quantity is known.
MR. HANNEMAN said the quantity and whether it is producible is
speculative at this point.
REPRESENTATIVE ROSES noted gas development in that area would
have a tremendous economic impact on the local communities.
1:38:14 PM
CO-CHAIR JOHNSON asked Mr. Hanneman if TechCominco's objective
is to use a gas turbine at the mine and to sell surplus power to
surrounding communities.
MR. HANNEMAN said that is a possibility.
There being no further questions, Co-Chair Johnson thanked all
participants for attending the meeting.
1:38:48 PM
ADJOURNMENT
There being no further business before the committee, the House
Resources Standing Committee meeting was adjourned at 1:28 p.m.
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