Legislature(2017 - 2018)SENATE FINANCE 532

02/15/2017 12:00 PM RESOURCES

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12:00:33 PM Start
12:01:10 PM Presentation(s): Mining Industry Update
12:50:05 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
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Presentation: Mining
**Streamed live on AKL.tv**
                    ALASKA STATE LEGISLATURE                                                                                  
                         JOINT MEETING                                                                                        
               HOUSE RESOURCES STANDING COMMITTEE                                                                             
              SENATE RESOURCES STANDING COMMITTEE                                                                             
                       February 15, 2017                                                                                        
                           12:00 p.m.                                                                                           
                                                                                                                                
MEMBERS PRESENT                                                                                                               
                                                                                                                                
HOUSE RESOURCES STANDING COMMITTEE                                                                                              
                                                                                                                                
 Representative Andy Josephson, Co-Chair                                                                                        
 Representative Geran Tarr, Co-Chair                                                                                            
 Representative Dean Westlake, Vice Chair                                                                                       
 Representative Harriet Drummond                                                                                                
 Representative Justin Parish                                                                                                   
 Representative Chris Birch                                                                                                     
 Representative DeLena Johnson                                                                                                  
 Representative George Rauscher                                                                                                 
 Representative David Talerico                                                                                                  
                                                                                                                                
SENATE RESOURCES STANDING COMMITTEE                                                                                             
                                                                                                                                
 Senator Cathy Giessel, Chair                                                                                                   
 Senator John Coghill, Vice Chair                                                                                               
 Senator Natasha von Imhof                                                                                                      
 Senator Shelley Hughes                                                                                                         
 Senator Kevin Meyer                                                                                                            
                                                                                                                                
MEMBERS ABSENT                                                                                                                
                                                                                                                                
HOUSE RESOURCES STANDING COMMITTEE                                                                                              
                                                                                                                                
 Representative Mike Chenault (alternate)                                                                                       
 Representative Chris Tuck (alternate)                                                                                          
                                                                                                                                
SENATE RESOURCES STANDING COMMITTEE                                                                                             
                                                                                                                                
 Senator Bert Stedman                                                                                                           
 Senator Bill Wielechowski                                                                                                      
                                                                                                                                
OTHER LEGISLATORS PRESENT                                                                                                     
                                                                                                                              
Senator Click Bishop                                                                                                            
                                                                                                                              
COMMITTEE CALENDAR                                                                                                            
                                                                                                                                
PRESENTATION(S):  MINING INDUSTRY UPDATE                                                                                        
                                                                                                                                
     - HEARD                                                                                                                    
                                                                                                                                
PREVIOUS COMMITTEE ACTION                                                                                                     
                                                                                                                                
No previous action to record                                                                                                    
                                                                                                                                
WITNESS REGISTER                                                                                                              
                                                                                                                                
KAREN MATTHIAS, Executive Director                                                                                              
Council of Alaska Producers                                                                                                     
Anchorage, Alaska                                                                                                               
POSITION STATEMENT:   Participated  in a  PowerPoint presentation                                                             
entitled, "Mining Industry Update," and dated 2/15/17.                                                                          
                                                                                                                                
DEANTHA CROCKETT, Executive Director                                                                                            
Alaska Miners Association                                                                                                       
Anchorage, Alaska                                                                                                               
POSITION STATEMENT:   Participated  in a  PowerPoint presentation                                                             
entitled, "Mining Industry Update," and dated 2/15/17.                                                                          
                                                                                                                                
ACTION NARRATIVE                                                                                                              
                                                                                                                                
12:00:33 PM                                                                                                                   
                                                                                                                                
CHAIR CATHY  GIESSEL called  the joint meeting  of the  House and                                                             
Senate  Resources  Standing Committees  to  order  at 12:00  p.m.                                                               
Present at  the call to  order from the House  Resources Standing                                                               
Committee  were  Representatives  Josephson,  Johnson,  Talerico,                                                               
Rauscher,   Birch,  Drummond,   Tarr,  Parish.     Representative                                                               
Westlake arrived as the meeting was  in progress.  Present at the                                                               
call to order  from the Senate Resources  Standing Committee were                                                               
Senators Giessel, Coghill, Meyer, and  Hughes.  Senator von Imhof                                                               
arrived  as  the meeting  was  in  progress.   Also  present  was                                                               
Senator Bishop.                                                                                                                 
                                                                                                                                
^PRESENTATION(S):  MINING INDUSTRY UPDATE                                                                                       
            PRESENTATION(S):  MINING INDUSTRY UPDATE                                                                        
                                                                                                                              
12:01:10 PM                                                                                                                   
                                                                                                                                
CHAIR GIESSEL announced that the  only order of business would be                                                               
a presentation  on the status of  mining in Alaska by  the Alaska                                                               
Miners Association and the Council of Alaska Producers.                                                                         
                                                                                                                                
12:01:49 PM                                                                                                                   
                                                                                                                                
KAREN MATTHIAS,  Executive Director, Council of  Alaska Producers                                                               
(CAP),  informed   the  committees  CAP  is   a  statewide  trade                                                               
association  for the  large producing  metal mines  and also  for                                                               
some of the advanced development projects in Alaska.                                                                            
                                                                                                                                
12:02:10 PM                                                                                                                   
                                                                                                                                
DEANTHA CROCKETT, Executive  Director, Alaska Miners Association,                                                               
Inc. (AMA),  informed the committee  AMA members  include members                                                               
of CAP  and members  of the  coal mining  industry, the  sand and                                                               
gravel   industry,  mom-and-pop   placer   operations,  and   the                                                               
contracting sector  that does business with  the mining industry.                                                               
She began  a PowerPoint  presentation entitled,  "Mining Industry                                                               
Update" and  dated 2/15/17.   Ms. Crockett said the  top priority                                                               
for  all of  Alaska's industries  is fiscal  policy and  she read                                                               
AMA's 2017 fiscal plan (document  not provided).  She said mining                                                               
occurs  because  everyone is  dependent  upon  the extraction  of                                                               
minerals for use in energy,  modern conveniences, and life-saving                                                               
devices, now  more than  ever (slides  1 and 2).   An  example of                                                               
evolving technology  is the pursuit of  renewable energy sources,                                                               
such as  wind farm  turbines that  require copper,  aluminum, and                                                               
rare earth elements.   Other renewable energy  items that require                                                               
minerals and  metals include batteries, solar  panels, and hybrid                                                               
cars (slide 3).  Alaska's  mines contribute to the world's demand                                                               
for metals  and minerals; for  example, the  Red Dog mine  is the                                                               
world's largest zinc concentrate  producer and also produces lead                                                               
and silver.  Red Dog mine  is owned by NANA Regional Corporation,                                                               
has been in  production since 1989, and employs  600 people, many                                                               
of whom are  NANA shareholders (slides 4 and 5).   Fort Knox mine                                                               
is Alaska's largest producing gold  mine, beginning operations in                                                               
1996  and  employing 660  employees,  all  of  whom live  in  the                                                               
Fairbanks North  Star Borough  (slides 6  and 7).   Pogo  mine is                                                               
located entirely on state land,  has been mining gold since 1996,                                                               
and employs  317 workers  (slides 8  and 9).   The  Usibelli Coal                                                               
Mine, operating  since in 1941  in Healy, now employs  110 people                                                               
and provides  29 percent of  Interior Alaska's electricity.   She                                                               
said  it is  the  policy  of Usibelli  Coal  Mine to  continually                                                               
restore the land (slides 10 and 11).                                                                                            
                                                                                                                                
12:07:44 PM                                                                                                                   
                                                                                                                                
MS. CROCKETT  continued to  the Kensington  Gold Mine  in Juneau,                                                               
which has  been producing  gold since  2010.   Kensington employs                                                               
325  people  and  is  the   second-largest  private  employer  in                                                               
Southeast Alaska (slides  12 and 13).  Greens  Creek mine located                                                               
in  Admiralty Island  National Monument,  is one  of the  top ten                                                               
silver producing mines,  and also produces zinc,  lead, and gold.                                                               
Greens  Creek mine  began  operations in  1989  and is  Southeast                                                               
Alaska's largest  private employee with 420  employees (slides 14                                                               
and 15).   In Juneau, mining is the largest  private employer and                                                               
the  City and  Borough of  Juneau's largest  taxpayer base.   She                                                               
provided  a  map  that  illustrated   sites  of  mining  activity                                                               
throughout Alaska,  and described advanced and  other exploration                                                               
projects as  follows:  Upper  Kobuk Mineral  Projects, Livengood,                                                               
Donlin  Gold, Wishbone  Hill,  Chuitna,  Pebble, Palmer  Project,                                                               
Niblack, and Bokan-Dotson Ridge (slide  16).  Ms. Crockett turned                                                               
to environmental issues and emphasized  that Alaskans should know                                                               
that   mining   operations    follow   environmental   safeguards                                                               
throughout the  state.   She noted  the mining  industry complies                                                               
with     permitting    regulations,     operational    oversight,                                                               
closure/reclamation, and financial  assurance requirements (slide                                                               
17).   In  Alaska, the  metal mining  industry is  young and  all                                                               
mines   comply   with  federal   laws   such   as  the   National                                                               
Environmental Policy  Act and the  Clean Water Act;  in addition,                                                               
federal  and  state  agencies  expect  safe  and  environmentally                                                               
secure  operations.   She  provided  a  listing  of some  of  the                                                               
permits and authorizations  required to mine in  Alaska; in fact,                                                               
the planning, environmental review,  testing and approval process                                                               
to permit a large mine requires many years.                                                                                     
                                                                                                                                
12:11:20 PM                                                                                                                   
                                                                                                                                
MS.  CROCKETT   explained  a  mine   on  federal   land  requires                                                               
additional permits.  Permits contain  stipulations and the mining                                                               
permitting process does not guarantee  approval, as every mine is                                                               
different  and   requires  a  specific  plan   for  environmental                                                               
mitigation;  in  addition,  there are  opportunities  for  public                                                               
participation  (slide  18).    These  regulatory  processes  over                                                               
mining  in  Alaska  lead  to success  as  evidenced  by  improved                                                               
riparian vegetation bordering Red Dog  Creek due to cleaner water                                                               
after mining operations commenced (slide  19).  From a regulatory                                                               
perspective, water quality results  reported to the Environmental                                                               
Protection  Agency (EPA)  indicated  zinc levels  are lower  than                                                               
before mining activity,  and also indicated the  presence of fish                                                               
and  aquatic insects  (slides 20  and 21).   The  Fort Knox  Mine                                                               
rehabilitated areas  of placer mining  in collaboration  with the                                                               
Alaska Department of  Fish & Game (ADF&G)  by constructing stream                                                               
channels  to  connect the  ponds  -  providing for  fish  passage                                                               
between the  ponds - and diversified  the surrounding vegetation,                                                               
eventually creating a fish and  wildlife sanctuary.  Jointly, the                                                               
mine  and ADF&G  received  environmental awards  for their  work.                                                               
Recently, Greens  Creek mine completed  reconstruction of  a fish                                                               
pass on Greens Creek to remove  a barrier to fish migration.  The                                                               
fish  pass was  proposed  in the  environmental impact  statement                                                               
(EIS) related to  the mine's original design.  The  fish pass was                                                               
destroyed in a  2005 storm, and building  a permanent replacement                                                               
was a big  undertaking in a remote location, but  had a beautiful                                                               
result (slides 23 and 24).                                                                                                      
                                                                                                                                
12:16:06 PM                                                                                                                   
                                                                                                                                
MS.  CROCKETT said  mines are  under strict  regulatory oversight                                                               
throughout  permitting, operation,  reclamation, and  closure; in                                                               
fact, a mine's plan for  reclamation and closure must be approved                                                               
by  the  commissioner  of the  Department  of  Natural  Resources                                                               
before  the  mine   begins  operations.    In   addition  to  the                                                               
reclamation plan,  the mine must  provide financial  assurance in                                                               
the  event  reclamation  obligations  are  not  met.    Financial                                                               
assurance  applies to  all companies  and mines,  as required  by                                                               
unprecedented Alaska law (slide 25).                                                                                            
                                                                                                                                
12:16:57 PM                                                                                                                   
                                                                                                                                
MS. MATTHIAS turned  attention from the importance  of mining and                                                               
its   environmental   safeguards   to   the   mining   industry's                                                               
contributions  to  Alaska.   Mines  in  Alaska employ  over  four                                                               
thousand people  directly, and thousands more  indirectly through                                                               
support services such  as environmental, management, engineering,                                                               
legal, and  transportation services.   She  said mining  jobs are                                                               
year-around jobs  with an  average salary  of $108,000,  which is                                                               
almost  twice the  state average,  and mining  employees live  in                                                               
over  50  communities  throughout  the state  (slide  26).    Ms.                                                               
Matthias  stressed  the  importance   of  the  mining  industry's                                                               
partnership  with   Native  corporations,  beginning   with  NANA                                                               
Regional Corporation and the Red Dog  mine.  At the time the mine                                                               
was  developed,   NANA  negotiated  an  agreement   that  ensured                                                               
shareholders would benefit from  royalties, jobs, and contracting                                                               
opportunities  for  NANA businesses.    Since  then, through  the                                                               
policies of the Alaska Native  Claims Settlement Act, hundreds of                                                               
millions  of dollars  have been  shared  with all  of the  Alaska                                                               
Native corporations, and  58 percent of the employees  at Red Dog                                                               
mine  are shareholders.   Another  successful partnership  is the                                                               
Donlin  Gold   project  and  Calista  Corporation;   the  project                                                               
includes  a  natural gas  pipeline  that  would bring  affordable                                                               
energy  to  local  villages  as  well as  the  mine  (slide  27).                                                               
Turning to benefits from mining  for local and state governments,                                                               
she noted  in 2016,  $23 million was  paid to  local governments,                                                               
$37 million to state government,  and $44 million in taxes, fees,                                                               
rents, and  royalties    (slide 28).   In addition, a  portion of                                                               
state  royalties for  mining  support the  corpus  of the  Alaska                                                               
Permanent Fund;  furthermore, the  fund has made  479 investments                                                               
in  global  metals  mining  and  fabricating,  and  in  stock  of                                                               
companies operating mines (slide 29).   She directed attention to                                                               
a  graph  published  by  the Institute  of  Social  and  Economic                                                               
Research   (ISER),   University   of  Alaska   Anchorage,   which                                                               
illustrated  over   a  five-year   average,  mining   revenue  is                                                               
significantly higher  than the  cost to the  state to  manage the                                                               
industry;  even  though mining  is  highly  regulated, the  state                                                               
bills  the industry  for its  costs through  reimbursable service                                                               
agreements (slide 30).  The  sources of state revenue from mining                                                               
are  as  follows:    Alaska  Mining  License  Tax  (AMLT),  state                                                               
corporate  income  tax,  state   fuel  taxes,  Alaska  Industrial                                                               
Development and  Export Authority  (AIDEA) facilities  user fees,                                                               
state  mineral   rents  and  royalties,  state   coal  rents  and                                                               
royalties, state  material sales, and state  mining miscellaneous                                                               
fees (slide  31).  From 2011  to 2016, AMLT revenue  declined due                                                               
to the  decline in commodity  prices; however, the  Department of                                                               
Revenue forecasts increases in AMLT  for fiscal year 2017 (FY 17)                                                               
and FY 18 (slide 32).                                                                                                           
                                                                                                                                
12:26:37 PM                                                                                                                   
                                                                                                                                
MS. MATTHIAS said  other than state revenue, mining  pays its way                                                               
through the costs of  exploration, development, and construction.                                                               
In  addition, the  cost  of  developing a  mine  in Alaska  often                                                               
includes  costs of  infrastructure and  access; for  example, the                                                               
Red Dog  and Kensington mines  must supply their power,  and Pogo                                                               
mine required a  50-mile road and transmission  line.  Additional                                                               
costs in Alaska also include  the reimbursable service agreements                                                               
and financial assurance for reclamation and closure (slide 33).                                                                 
                                                                                                                                
MS. MATTHIAS  advised AIDEA's investment  in the  mining industry                                                               
has been  successful through  ports and roads;  in addition  to a                                                               
certain  return  on  investment,   AIDEA's  mission  is  also  to                                                               
stimulate Alaska's economic  growth, as did the Red  Dog port and                                                               
road.   From an  investment of $265  million, AIDEA  has received                                                               
$439 million in  payment as of 12/16, at an  annual interest rate                                                               
of 6.5  percent (slide 34).   She turned to the  mining potential                                                               
of  the state  and  noted  the challenge  to  the development  of                                                               
mining  in Alaska:   since  1981, millions  of dollars  have been                                                               
spent, but only five large metal  mines are operating due to high                                                               
costs and many years in development  (slides 35 and 36).  Current                                                               
projects in  development require access  to capital, and  to also                                                               
convince investors that  Alaska is a better place  to invest than                                                               
competing   jurisdictions   elsewhere   in  the   U.S.,   Canada,                                                               
Australia, and other parts of the  world (slide 37).  In the last                                                               
five years, exploration  has declined 60 percent  globally and in                                                               
Alaska 83 percent:   from $395 million in 2011  to $50 million in                                                               
2015;  however, a  small increase  was seen  in 2016  (slide 38).                                                               
Fewer investment dollars  also means a decrease in  the number of                                                               
communities with mining industry employees (slide 39).                                                                          
                                                                                                                                
12:34:31 PM                                                                                                                   
                                                                                                                                
MS.  MATTHIAS  presented  a graph  that  illustrated  the  global                                                               
market volatility of  metals mining:  from 2007  there was robust                                                               
growth  until the  financial  crisis in  2008,  then recovery  to                                                               
2011, further  decline to 2016,  and increasing interest  in 2017                                                               
(slide  40).   To  ensure  Alaska  benefits from  the  increasing                                                               
interest  in   mining,  the  state   must  maintain   a  positive                                                               
investment climate.  She advised  that investment capital will go                                                               
to   jurisdictions  that   encourage  mineral   development,  and                                                               
expressed her  hope that Alaska  will have policies  that attract                                                               
investment and bring more mines into production (slide 41).                                                                     
                                                                                                                                
SENATOR BISHOP  said he worked  closely with the  mining industry                                                               
at the  Department of  Labor &  Workforce Development  and stated                                                               
the legacy of  mining is the permanent jobs that  are created and                                                               
the transferrable skill sets acquired by mine employees.                                                                        
                                                                                                                                
CHAIR GIESSEL asked for more  information on Alaska Mental Health                                                               
Trust Authority (Trust) lands that have mineral prospects.                                                                      
                                                                                                                                
MS.  MATTHIAS responded  Fort  Knox operates  on  Trust land;  in                                                               
2016,  $2.6 million  went to  the  Trust for  mining claim  lease                                                               
rents and royalty payments, and  construction material sales.  In                                                               
addition,  the  Trust  has  other   land  with  potential  mining                                                               
activity.                                                                                                                       
                                                                                                                                
REPRESENTATIVE  WESTLAKE   noted  in  addition  to   the  revenue                                                               
generated by mining, often overlooked  are the skills gained that                                                               
are valuable  to those  in rural  areas.   He related  a personal                                                               
story of village  first responders who were certified  at the Red                                                               
Dog  mine.    These  invaluable skills  help  keep  rural  Alaska                                                               
vibrant and sustainable.                                                                                                        
                                                                                                                                
12:40:34 PM                                                                                                                   
                                                                                                                                
SENATOR COGHILL said  in Fairbanks and the  Interior small placer                                                               
miners benefit from the service  industries that are supported by                                                               
the large mines.                                                                                                                
                                                                                                                                
MS. CROCKETT acknowledged  placer mining is an  important part of                                                               
AMA membership; in  fact, the aggregate of small  mines - related                                                               
to  the number  of employees  and their  economic contribution  -                                                               
equals the  impact of a large  mine.  She observed  the large and                                                               
small  mines  have  a  great   symbiotic  relationship  and  both                                                               
benefit.                                                                                                                        
                                                                                                                                
SENATOR  COGHILL  advised  in Anchorage  and  the  Interior,  the                                                               
availability of  the Alaska Railroad  Corporation (ARRC)  to move                                                               
gravel and coal  south supports the transportation  system and is                                                               
a huge benefit.                                                                                                                 
                                                                                                                                
MS. CROCKETT  added cargo shipped  north on the railroad  for the                                                               
mines is an economic boon for both the railroad and the mines.                                                                  
                                                                                                                                
CO-CHAIR TARR  questioned how to  better utilize the  AIDEA model                                                               
to  build the  infrastructure needed  to develop  projects.   She                                                               
also  inquired as  to trade  agreements and  export opportunities                                                               
awaiting the mining industry.                                                                                                   
                                                                                                                                
12:44:23 PM                                                                                                                   
                                                                                                                                
MS.  MATTHIAS  said  AIDEA  makes  its  judgments  based  on  the                                                               
economic  feasibility  of  projects.   She  referred  to  pending                                                               
legislation that would  allow AIDEA to invest  in mining projects                                                               
in Southeast Alaska, although the  decision to invest is based on                                                               
AIDEA's  mandates   of  making  good  investments   and  spurring                                                               
economic activity.   She observed ore is  Alaska's second largest                                                               
export  and   companies  seek  to   ensure  Alaska's   access  to                                                               
international markets.                                                                                                          
                                                                                                                                
12:46:01 PM                                                                                                                   
                                                                                                                                
SENATOR  HUGHES advised  Alaska  has 17  percent  of the  world's                                                               
coal, but many  deposits are in remote places.   If Alaska had no                                                               
barriers  to  development,  she  asked  what  the  potential  for                                                               
mineral development would  be.  Also, she questioned  how the new                                                               
administration may affect the pace of development.                                                                              
                                                                                                                                
MS. CROCKETT  will provide an  estimate to Senator Hughes  on the                                                               
total  percentage of  Alaska's deposits  mined, further  deposits                                                               
accessible,  and  what percentage  is  untapped.   Regarding  the                                                               
change of the federal administration,  she opined it is too early                                                               
to tell how mining development  will be affected, however, AMA is                                                               
encouraged by  the statements made  by nominees  at cabinet-level                                                               
confirmation hearings, that America is overregulated.                                                                           
                                                                                                                                
SENATOR COGHILL  referred to the mining  industry's participation                                                               
with the  state on cross-boundary  issues with  British Columbia,                                                               
and advised water quality inspections and mining engineering in                                                                 
Alaska are tools for agreements in this regard.                                                                                 
                                                                                                                                
12:50:05 PM                                                                                                                   
                                                                                                                                
ADJOURNMENT                                                                                                                   
                                                                                                                                
There being no further business before the committees, the joint                                                                
meeting of the House and Senate Resources Standing Committees                                                                   
was adjourned at 12:50 p.m.                                                                                                     

Document Name Date/Time Subjects
AMA Presentation.pdf HRES 2/15/2017 12:00:00 PM