Legislature(2017 - 2018)BARNES 124
04/06/2018 01:00 PM House RESOURCES
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| Audio | Topic |
|---|---|
| Start | |
| HB331 | |
| Presentation: Alaska Industrial Development and Export Authority | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | HB 331 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
| + | TELECONFERENCED |
ALASKA STATE LEGISLATURE
HOUSE RESOURCES STANDING COMMITTEE
April 6, 2018
1:03 p.m.
MEMBERS PRESENT
Representative Andy Josephson, Co-Chair
Representative Geran Tarr, Co-Chair
Representative John Lincoln, Vice Chair
Representative Harriet Drummond
Representative Justin Parish
Representative Chris Birch
Representative DeLena Johnson
Representative David Talerico
MEMBERS ABSENT
Representative George Rauscher
Representative Mike Chenault (alternate)
Representative Chris Tuck (alternate)
COMMITTEE CALENDAR
HOUSE BILL NO. 331
"An Act establishing the Alaska Tax Credit Certificate Bond
Corporation; relating to purchases of tax credit certificates;
relating to overriding royalty interest agreements; and
providing for an effective date."
- HEARD & HELD
PRESENTATION(S): ALASKA INDUSTRIAL DEVELOPMENT AND EXPORT
AUTHORITY
- HEARD
PREVIOUS COMMITTEE ACTION
BILL: HB 331
SHORT TITLE: TAX CREDIT CERT. BOND CORP; ROYALTIES
SPONSOR(s): RULES BY REQUEST OF THE GOVERNOR
02/07/18 (H) READ THE FIRST TIME - REFERRALS
02/07/18 (H) RES, FIN
03/30/18 (H) RES AT 1:00 PM BARNES 124
03/30/18 (H) Heard & Held
03/30/18 (H) MINUTE(RES)
04/04/18 (H) RES AT 1:00 PM BARNES 124
04/04/18 (H) Heard & Held
04/04/18 (H) MINUTE(RES)
04/06/18 (H) RES AT 1:00 PM BARNES 124
WITNESS REGISTER
KEN ALPER, Director
Tax Division
Department of Revenue
Juneau, Alaska
POSITION STATEMENT: Provided a sectional analysis of HB 331 and
answered questions during the hearing of HB 331.
MIKE BARNHILL, Deputy Commissioner
Office of the Commissioner
Department of Revenue
Juneau, Alaska
POSITION STATEMENT: Answered a question during the hearing of
HB 331.
DEVEN MITCHELL, Executive Director
Alaska Municipal Bond Bank Authority
Department of Revenue
Juneau, Alaska
POSITION STATEMENT: Answered questions during the hearing of HB
331.
WILLIAM MILKS, Senior Assistant Attorney General
Labor and State Affairs Section
Civil Division(Juneau)
Department of Law
Juneau, Alaska
POSITION STATEMENT: Answered questions during the hearing of HB
331.
JOHN SPRINGSTEEN, CEO/Executive Director
Alaska Industrial Development and Export Authority
Department of Commerce, Community & Economic Development
Anchorage, Alaska
POSITION STATEMENT: Provided a PowerPoint presentation
entitled, "Ambler Access Update," dated 4/6/18, and answered
questions.
MARYELLEN TUTTELL, PE; Chief Risk Officer
DOWL
Anchorage, Alaska
POSITION STATEMENT: Answered questions during the presentation
of the "Ambler Access Update" by the Alaska Industrial
Development and Export Authority.
GENE THERRIAULT, Team Leader
Interior Energy Project
Alaska Industrial Development and Export Authority
Department of Commerce, Community & Economic Development
Anchorage, Alaska
POSITION STATEMENT: Answered questions during the presentation
of the "Ambler Access Update" by the Alaska Industrial
Development and Export Authority.
RICK VAN NIEUWENHUYSE, President/CEO
Trilogy Metals Inc.; Director
NovaGold
Vancouver, British Columbia
Canada
POSITION STATEMENT: Provided a PowerPoint presentation
entitled, "Advancing the Ambler Mining District in Alaska by
Forming Strong Partnerships."
BRENDA APPLEGATE, Chief Financial Officer
Alaska Industrial Development and Export Authority
Department of Commerce, Community & Economic Development
Anchorage, Alaska
POSITION STATEMENT: Answered questions during the presentation
of the "Ambler Access Update" by the Alaska Industrial
Development and Export Authority.
DAVID G. CLARKE
Anchorage, Alaska
POSITION STATEMENT: Provided a PowerPoint presentation
entitled, "Ambler Mining District Industrial Access Road
Project."
ACTION NARRATIVE
1:03:00 PM
CO-CHAIR ANDY JOSEPHSON called the House Resources Standing
Committee meeting to order at 1:03 p.m. Representatives
Josephson, Tarr, Parish, Drummond, and Lincoln were present at
the call to order. Representatives Talerico, Birch, and Johnson
arrived as the meeting was in progress.
HB 331-TAX CREDIT CERT. BOND CORP; ROYALTIES
1:03:28 PM
CO-CHAIR JOSEPHSON announced that the first order of business
would be HOUSE BILL NO. 331, "An Act establishing the Alaska Tax
Credit Certificate Bond Corporation; relating to purchases of
tax credit certificates; relating to overriding royalty interest
agreements; and providing for an effective date."
1:04:25 PM
KEN ALPER, Director, Tax Division, Department of Revenue (DOR),
continued his presentation from the previous House Resources
Standing Committee hearing of HB 331 on 3/30/18, and explained
the language of HB 331 incorporates the following:
• a structure creating the bond corporation and
authorization to sell bonds
• a structure containing conforming changes to existing
language to ensure the existing process to purchase tax
credits is not overwritten, but is supplemented through the
bonding method
• a structure containing a series of new sections describing
the mechanisms by which DOR values the tax credits and
other factors
• a Department of Natural Resources (DNR) statute related to
how DNR would negotiate and authorize overriding royalty
interests offered by companies
MR. ALPER directed attention to a sectional analysis of HB 331,
provided in the committee packet, which read [original
punctuation provided]:
Section 1:
Exempts the bond corporation created in Sec. 2, and
any overriding royalty interests negotiated under Sec.
11, from the procurement code.
Section 2:
Establishes the Alaska Tax Credit Certificate Bond
Corporation within DOR. [Largely patterned after
Alaska Pension Obligation Bond Corporation, AS 37.16]
37.18.010 Creates the corporation.
37.18.020 Establishes the board of directors, all
of whom are state department commissioners.
37.18.030 Authorizes the corporation to issue
bonds up to $1 billion and contract for associated
services.
37.18.040 Authorizes the corporation to have a
reserve fund which will hold funds to be used for
repurchase, as well as funds appropriated for the
purpose of interest and principal payments to bond
holders.
37.18.050 Authorizes the corporation to set the
terms of bonds to be issued.
37.18.060 Corporation must adopt a resolution to
approve the issuance of bonds.
37.18.070 Gives certain enforcement rights to
certain bond holders.
37.18.080 Bonds may not be issued unless the
discount rate by which tax credits are purchased is at
least 1.5% greater than the total interest cost of the
bonds.
37.18.090 Corporation may refund bonds prior to
the maturity date.
37.18.100 Bonds are legal instruments.
37.18.800 This chapter shall be liberally
construed to carry out its purposes.
37.18.810 Corporation may adopt regulations
necessary to implement this chapter.
37.18.900 Definitions.
Section 3: Amends the Gas Storage Credit to enable
repurchase of any credits via the bond program.
Section 4: Amends the LNG Storage Credit to enable
repurchase of any credits via the bond program.
Section 5: Amends the Refinery Infrastructure Credit
to enable repurchase of any credits via the bond
program.
Section 6: Amends various provisions of AS 43.55.028,
the tax credit repurchase fund. .028(e) The department
may either use the tax credit fund money, or money
disbursed from the bond program, to purchase tax
credits. Written to maximize flexibility and retain
the existing program and procedures.
Section 7: .028(g) Clarifies that the current $70
million per company per year cap, with the associated
"haircut", does not apply to repurchases via the bond
program.
Section 8: .028(i) Adds definitions for "money
disbursed to the commissioner," and "total interest
cost."
Section 9: .028(j) Clarifies that if a company has an
outstanding liability to the state, this can be offset
against a payment via the bond program as well as via
traditional repurchase.
Section 10:
.028(k) New section authorizing the department to
negotiate a repurchase of all credits held by a
company, and describing how the holder of credits
indicates their desire to participate in the program.
This section contemplates that if a holder of credits
existing at the time of a bond issuance declines to
participate in the program, such holder is precluded
from submitting such existing credits for purchase in
connection with future bond issuances. This provision
does not preclude such holder from submitting credits
claimed after a bond issuance for purchase in
connection with a future bond issuance.
.028(l) New section describes the mechanism by which
the department estimates the expected cash flow to a
company via the current repurchase process and
expected schedule. From this estimate, a purchase
offer can be calculated based on the discount rate
determined in (m).
.028(m) New section establishing a base discount rate
of 10%, with four methods to reduce this to a number
equal to total interest cost + 1.5%.
1. For a seismic credit, the company has waived
the 10-year confidentiality period for the data and
allowed it to become public;
2. The company has agreed to an overriding
royalty interest (ORRI) accepted by the Department of
Natural Resources;
3. The company has committed reinvest the entire
amount received within an Alaska oil and gas project
within 24 months;
or 4. The credit is against the corporate income
tax, primarily impacting refinery infrastructure
credits.
.028(n) New section clarifying that the amount of a
credit in excess of the discounted amount purchased
retains no value and cannot be used against taxes or
sold.
Section 11: Authorizes the Department of Natural
Resources to negotiate Overriding Royalty Interests
(ORRI). These are then valued, and a determination is
made whether the incremental value received by the
state warrants the approval of the lower discount rate
for purposes of credit repurchase.
Section 12: Authorizes DNR and DOR to adopt
regulations to implement this act
Section 13: Authorizes retroactive application of
regulations.
Section 14: Immediate effective date.
1:06:02 PM
MR. ALPER further explained Section 1 contains conforming
language exempting the bond corporation and royalty interest
from the Alaska Procurement Code. Section 2 is similar to other
Alaska state statutes creating special purpose bonding
mechanisms such as the pension obligation bond authority, and
other authorities that are delegated to the commissioner of DOR.
Also included in Section 2 is the provision that the structure
of the bond is left to the discretion of the commissioner of
DOR.
REPRESENTATIVE PARISH expressed his understanding that the
Alaska Pension Obligation Bond Corporation has never issued
bonds.
MR. ALPER said correct.
REPRESENTATIVE PARISH asked whether any other state corporations
- that would acquire debt in a similar manner to the proposed
bond corporation - have been created "without revenue streams
internal to them."
1:08:38 PM
MIKE BARNHILL, Deputy Commissioner, Office of the Commissioner,
DOR, before responding to Representative Parish, made the point
of correction: the commissioner of DOR does not set the
structure of the bond debt service under the statute but the
board of directors of the Alaska Tax Credit Bond Corporation
would perform that function. The board of directors would
include the commissioners of DOR, the Department of Commerce,
Community & Economic Development (DCCED), and the Department of
Administration (DOA).
REPRESENTATIVE PARISH restated his question.
MR. BARNHILL advised there are many state entities that issue
bonds and deferred to Devin Mitchell.
1:10:19 PM
DEVEN MITCHELL, Executive Director, Alaska Municipal Bond Bank
Authority, DOR, explained a similar entity would be the Alaska
Housing Finance Corporation (AHFC) which entered into an
agreement with the state to purchase what is now known as the
[Robert B. Atwood Building]; there were no revenues in the
agreement except for the state's pledge to pay on a "subject to
appropriation" basis, as allowed by standalone law, and which is
exactly as proposed in HB 331. Further, the proposal is a
familiar structure to the state as well as to municipal market
participants.
REPRESENTATIVE PARISH commented the aforementioned example was a
lease purchase agreement; however, HB 331 proposes a debt of up
to $1 billion for the state with no lease directly involved. He
asked how HB 331 resembles a lease purchase agreement.
MR. MITCHELL answered a lease purchase agreement is based on a
lease which is subject to appropriation; HB 331 [bond] debt
would be based on a contract, also subject to appropriation. He
remarked:
In the case of the lease, [should the state choose not
to appropriate], the negative ramification would be
you would not only get downgraded, you would lose
access to the building for a period of time. Not the
entire life of the building, but just a period of time
as established in the lease. And, that could be
negotiated down to as short as a year, and then the
state would again have right to occupy the facility
even though there'd been a failure. So, again, it's a
familiar structure to the state and it's a familiar
structure to the capital markets.
REPRESENTATIVE PARISH referred to the Constitution of the State
of Alaska, Article IX, Section 8. State Debt., which read [in
part, original punctuation provided]:
No state debt shall be contracted unless authorized by
law for capital improvements or unless authorized by
law for housing loans for veterans, and ratified by a
majority of the qualified voters of the State who vote
on the question.
REPRESENTATIVE PARISH continued to Section 11. Exceptions.,
which read [in part]:
The restrictions on contracting debt do not apply to
debt incurred through the issuance of revenue bonds
....
REPRESENTATIVE PARISH asked whether the proposed bonds are
revenue bonds.
1:12:57 PM
MR. MITCHELL said they are not. He clarified the bonds would
be revenue bonds of the corporation; the corporation would issue
either revenue bonds or general obligation bonds of the
corporation, however, the final structure has not been
determined. Mr. Mitchell continued:
I work with another public corporation, the Alaska
Municipal Bond Bank [Authority (AMBBA)], [and] we, we
borrow money based on underlying communities' need of
borrowing money. So, when we borrow money in the
capital markets, we issue general obligation bonds of
the Alaska Municipal Bond Bank, which [are] secured by
that cross-collateralized underlying borrowing pool as
well as the State of Alaska's moral obligation pledge.
And, in the instance of the ... bond bank, we sell
general obligation bonds for both revenue bonds of
underlying communities as well as general obligation
bonds of underlying communities. And so, the
corporation, ... the separately legally existing
corporation we're talking about, would be able to
potentially sell general obligation bonds, but the
only thing that would be securing those would be the
revenues that it would derive from this contract it
would enter into with the state. And so, it could
also be structured ... potentially as a revenue bond.
REPRESENTATIVE PARISH questioned whether the proposed bond
corporation's issuance of a general obligation bond would be
subject to a majority vote of the qualified voters.
MR. MITCHELL restated such a bond would be a general obligation
bond of the corporation and not of the state. Public
corporations, such as the Alaska Student Loan Corporation
[Postsecondary Education Commission], Department of Education
and Early Development, the Alaska Industrial Development and
Export Authority (AIDEA), Department of Commerce, Community &
Economic Development, AMBBA, and AHFC, can issue general
obligation bonds of the corporation. He characterized general
obligation bonds as "a more limited pledge, obviously, than the
State of Alaska's general obligation pledge, but could be a full
faith and credit pledge of that legal existence, of that
entity."
1:15:11 PM
WILLIAM MILKS, Senior Assistant Attorney General, Labor and
State Affairs Section, Civil Division(Juneau), Department of Law
(DOL), directed attention to a letter addressed to Senator
Giessel, dated 3/2/18, from Mr. Mitchell, representing DOR, and
himself, representing DOL, that was included in the committee
packet. Mr. Milks informed the committee the letter addresses
the constitutionality issue, opining the proposed bonds are
constitutional because they are "subject to appropriation"
bonds. He returned attention to Article IX, Section 8, [text
previously provided, in part], commonly known as the debt
provision, and further advised Section 8 applies specifically to
a general obligation bond, backed by the full faith and credit
of the State of Alaska, and thereby not a subject to appropriate
bond. General obligation bonds must be paid regardless of the
state's financial circumstances, are issued for capital
improvements, and are usually subject to voter approval. As
noted in the letter, a key case was reviewed by the Alaska
Supreme Court, Carr-Gottstein Properties v. State, 899 P.2d 136,
142-44 (Alaska 1995), and the court decided the issue is whether
a bond is subject to appropriation, and the special meaning of
debt under the constitution. Mr. Milks concluded if a bond does
not hold the full faith and credit of the State of Alaska for
repayment, it is subject to appropriation, which is a procedure
the courts have permitted in Alaska and elsewhere.
REPRESENTATIVE PARISH recalled previous testimony that if [the
legislature] failed to appropriate [funds for repayment], the
state's bond rating could be downgraded two or three times, and
surmised the state's faith and credit is "on the line," although
creating a shell corporation would "dodge" the narrowest reading
of the law. He asked, "How is this really substantively and
significantly not state debt if our credit rating could take an
enormous hit for failure to pay?"
1:17:52 PM
MR. MILKS pointed out the bill on page 2, [lines 19-22],
specifically states the bonds do not constitute general
obligations to the State of Alaska. He reiterated the Alaska
Supreme Court has interpreted this provision to be a moral
authority bonding, which is subject to appropriation. He
deferred to Mr. Mitchell for a further response.
MR. MITCHELL acknowledged the state could choose not to pay,
have its credit rating downgraded, and lose access to the
capital markets with the subject to appropriation commitment;
with a general obligation commitment, the state would be forced
and compelled to pay. In fact, the Alaska Statute provides a
standing appropriation that does not require annual legislative
action to pay general obligation bond debt service; however,
there is no similar provision for any subject to appropriation
obligation.
CO-CHAIR JOSEPHSON, in response to Representative Parish,
advised testimony by the department representatives would be
ending; however, the representatives may be available to answer
additional questions [following the hearing].
1:19:54 PM
REPRESENTATIVE PARISH stressed HB 331 provides for a debt of
possibly $1 billion; therefore, he would like all his questions
exhausted on the record at this hearing. The fundamental
question is whether the state can create a corporation to take
on debt which is neither revenue debt, revenue bonds, nor
general obligation bonds, but is "a sort of nebulous additional
... category," and if so, whether there is any limit to the
amount of debt. He questioned whether a state corporation could
accrue $5 billion in loans so [the legislature] could follow the
statutory dividend formula to pay the Permanent Fund Dividend,
and observed the Alaska Supreme Court decision [Bill
Wielechowski, Rick Halford, and Clem Tillion v. State of Alaska
and Alaska Permanent Fund Corporation] found that the power of
appropriation rests with the legislature and thus, the statute
cited earlier becomes murky.
1:21:32 PM
MR. MITCHELL disagreed that the aforementioned legal opinion
relates to general obligation bonds and the state's commitments,
which are embedded in the state constitution. He deferred to
Mr. Milks for further discussion in this regard. He said
Representative Parish's questions have been asked "many times
before"; however, [the proposal within HB 331] is legal under
Alaska law and is accepted as a common form of financing
utilized by Alaska and other states.
REPRESENTATIVE JOSEPHSON, in response to Representative Birch's
suggestion to end testimony on HB 331, advised further review of
constitutional questions may be necessary prior to hearing
amendments to the bill, which is scheduled for 4/9/18.
REPRESENTATIVE PARISH remarked:
On this specific question, the difference has been,
been clearly established as to whether or not a, the
state should be allowed to contract state debt without
a general vote of the people, without a revenue bond,
and without any of the other specific exceptions
listed in the constitution. And on the counterpoint,
there's, there's the assertion that because lease
purchase agreements in the past have gone forward
because the Pension Obligation Bond Corporation was
established, and because, the bill says, " ... it is
constitutional," I guess, I guess that's, that's just
a disagreement which may have to get resolved in the
courts.
1:25:03 PM
CO-CHAIR TARR stated under current Alaska statute there is
already a formula - subject to appropriation - for paying the
[tax] credits; HB 331 is an alternative proposal to pay the tax
credits which would also be subject to appropriation. She
cautioned the reason for the current debate is because "no one
read the statute" before making business decisions to spend
money and obtain bank financing based on the state's repayment
of tax credit certificates. Co-Chair Tarr suggested if the
statute had been read, beneficiaries would have acted more
cautiously and would not be defaulting on loans while waiting
for the state to repay tax certificates. Although the funding
provision within HB 331 is subject to appropriation, there would
be every expectation that the money would be appropriated. She
concluded HB 331 does not resolve the current fundamental
problem, which is having sufficient funds to pay the credits
that are due.
MR. MITCHELL did not respond to the policy aspects of the
question. From a debt perspective, he said HB 331 differs from
the sort of subject to appropriation commitment that currently
exists in financing markets. He expressed his concern about
maintaining the state's credit rating, its access to capital
markets, and its ability to accomplish needed capital projects
through the use of financing tools. Within all capital markets,
an entity's ability to borrow is only as good as how its word is
perceived. In the event an entity fails to pay its bills, that
entity will experience higher interest rates or diminished
access. Also related to financing in capital markets, the
current diminished payments that have been made on the credits
currently due have a lesser impact on the state's credit rating
than if the state defaults - a non-payment - on a subject to
appropriation bond issue of a public corporation.
There followed a short discussion regarding the deadline for
amendments to HB 331.
1:29:36 PM
The committee took an at-ease from 1:29 p.m. to 1:32 p.m.
1:31:25 PM
CO-CHAIR JOSEPHSON posed a scenario in which credit holders, who
may or may not have transferred their credits, would be able to
decline to have provisions of the bill applied and would instead
proceed under the normal payment schedule. He asked whether,
under the aforementioned circumstances, the state would need to
pay [tax credit certificates] under two different payment
streams.
MR. ALPER returned to the sectional analysis of HB 331 and said
Sections 3, 4, and 5 are similar in structure and relate to the
existing tax credits that are in the corporate income tax
statute, AS 43.20. Existing corporate income tax provisions
include a gas storage credit for the Kenai Gas Storage Facility,
a liquefied natural gas (LNG) storage credit for the main
storage tanks in Fairbanks, a credit for the Interior Gas
Utility, and a refinery infrastructure credit. As currently
written, the aforementioned credits can be purchased with money
from the tax credit [repurchase] fund. However, the existing
language would be amended by HB 331, so the credits could also
be purchased with proceeds of the [tax credit] bonds.
MR. ALPER explained Sections 6-9 amend portions of AS 43.55.028,
the tax credit [repurchase] fund, as follows: Section 6 relates
to the use of tax credit fund money or money disbursed from the
bond program to purchase tax credits; Section 7 clarifies that
there is no $70 million [per company per year] cap on
repurchases via the bond program; Section 8 adds definitions,
notably, "money disbursed to the commissioner" means the
proceeds of the bond; Section 9 clarifies that a right to offset
a credit payment held by a company would be extended to a bond
purchase. Section 10 is a new section adding four new
subsections to AS 43.55.028. Subsection (k) requires companies
to offer their credits to the program, and all credits must be
offered. Further, companies that choose not to participate
cannot offer credits in a subsequent bond offering. Mr. Alper
characterized the provisions in subsection (k) as language that
is intended to prevent parties from "gaming the system."
1:37:07 PM
MR. ALPER said subsection (l) provides the mechanism to
determine a company's expected cash flow under the traditional
credit repurchase structure using new definitions affected by a
company's pro rata share of the annual appropriation per the
formula within [AS 43.55.028(c)]. The existing language would
be clarified by subsection (l), and he remarked:
We're going to presume we are appropriating for the
next five, six years at "x" dollars per year based on
the fact that you have this much credit in 2016,
they're going to get paid first pro rata for however
many years it takes, and then all the 2017 credits
will be paid pro rata for however many years it takes.
So, every company will be given a unique expected cash
flow under the traditional system, which is then
discounted at a discount rate. The discount rate is
covered in subsection (m), and what subsection (m)
says is that the base discount rate is 10 percent per
year, and then there are four different ways by which
a company could buy that down to the lower rate, which
is written in as, as the true interest cost plus 1.5
percent, which we currently forecast to be about 5.1
percent interest. But that would be determined closer
to the date of final issuing of the bonds. We've
talked about what those four methods are, they're
clearly written out in (m). Either you have the
overriding royalty interest; the commitment to
reinvest all of the proceeds. If you have seismic
credits, ... you have to waive your 10 years of
confidentiality on the seismic data. Or, if you have
one of those corporate income tax credits - primarily
the refinery credit - outstanding, you're
automatically bought in at the lower interest rate.
MR. ALPER continued to subsection (n) which clarifies if a
credit is sold at less than face value, the remaining value
cannot be cashed, sold, or used to offset taxes. Section 11
authorizes the Overriding Royalty Interests (ORRI) and provides
the mechanisms and rules for negotiations between DNR and credit
holders related to the value of fields offered for credit and
factors affecting said value. For example, calculations would
include cash flow, royalty interest, and present value. In
fact, the mandate is: the present value of the overriding
royalty interest must be at least equal or greater than the
incremental value the company would receive from the lower
discount rate versus the higher discount rate. Sections 12-14
are: authority to write regulations; the ability for those
regulations to take effect retroactively if they are not
finalized before the effective date; the effective date. Mr.
Alper concluded, noting HB 331 has an immediate effective date,
thus after its expected passage in May, [2018], the process of
underwriting and preparing bonds would be completed and bonds
would be issued in August or September [2018].
1:41:10 PM
[HB 331 was held over.]
^PRESENTATION: Alaska Industrial Development and Export
Authority
PRESENTATION: Alaska Industrial Development
and Export Authority
1:41:38 PM
CO-CHAIR JOSEPHSON announced that the final order of business
would be a presentation on the Ambler Mining District Industrial
Access Road project provided by the Alaska Industrial
Development and Export Authority (AIDEA), Department of
Commerce, Community & Economic Development (DCCED).
1:42:15 PM
JOHN SPRINGSTEEN, CEO/Executive Director, AIDEA, DCCED, provided
a PowerPoint presentation entitled, "Ambler Access Update,"
dated 4/6/18. Mr. Springsteen informed the committee the Ambler
Mining District Industrial Access Project (AMDIAP) addresses the
infrastructure necessary to enable another economic engine for
Alaska and is one of two special projects assigned to AIDEA.
From 2013 through 2015, AIDEA received appropriations totaling
$17 million for the project, about $13 million has been expended
or encumbered, and about $4 million remains. Although federal
permitting is expensive and challenging, he acknowledged the
need to utilize "proper science" and to hear testimony from the
affected communities. Mr. Springsteen said access to the Ambler
Mining District is necessary because it is a resource rich
region with four known key deposits; further, decades of
exploration findings were reported by the U.S. Geological Survey
(USGS) in 1977 [document not provided] which identified a
district rich in gold and copper, nickel, jade, molybdenum, and
other minerals (slides 5 and 6). In fact, the importance of
access to the Ambler Mining District was recognized by the
federal government in a provision of the Alaska National
Interest Lands Conservation Act (ANILCA) (slide 7). He directed
attention to slides entitled, "Alaska - A Connected Economy,"
and "Alaska - Key Infrastructure," and said Alaska's primary
economic engines are its resources such as oil and gas, seafood,
timber, tourism, and mineral mining. However, industry
infrastructure is the key to unlocking the state's economic
engines, for example, roads, ports, and shipping lanes. Mr.
Springsteen informed the committee AIDEA's model for access to
the Ambler Mining District is the road portion of the Delong
Mountain Transportation System (DMTS) which provides the Red Dog
Mine access to world markets. A slide entitled, "DeLong
Mountain Transportation System servicing the Red Dog Mine" was a
picture of its infrastructure including a portion of the road, a
warehouse, a conveyor system, a camp, a fuel terminal, a dock,
and power generation, all of which are aspects of infrastructure
to support the mine. [Representing its return on investment],
the Red Dog Mine provides revenue to the state, to the Northwest
Arctic Borough, to NANA Regional Corporation (NANA) and to other
Native corporations, and job opportunities for Alaskans. A
slide entitled, "Stakeholders in the Red Dog Mine" illustrated
various stakeholders who benefit from "more self-reliant
communities." He reviewed [2015] employment statistics and
economic impact figures listed on a slide entitled, "Red Dog
Mine Benefits."
1:48:06 PM
MR. SPRINGSTEEN directed attention to slide 14, which listed
purposes of the project: permanent access, construction of
enabling infrastructure, supporting development and promoting
economic development. Slide 10 listed potential community
benefits such as broadband access, local jobs, better access to
transportation and goods and services, and a tax base to fund
community assets for communities that seek these benefits.
Slide 16 illustrated the process of the Ambler access project
and he pointed out the project is in the scoping process managed
by the Bureau of Land Management (BLM), U.S. Department of the
Interior; even after the project route is permitted, significant
additional permits would be necessary. Turning to the history
of the project, he recalled in 2010, the project was assigned to
the Department of Transportation & Public Facilities (DOTPF) and
was reassigned to AIDEA in 2013. Community outreach is ongoing
and based on preliminary research and engineering, DOTPF
evaluated eight routes considering factors of wetlands,
endangered species, sites, wildlife, and migration patterns; the
evaluation revealed a route across the Gates of the Arctic
National Preserve would have the lowest impact (slide 19).
Subsequently, a proposed Ambler access project corridor was
submitted in AIDEA's permit application in 2015; he pointed out
the route was adjusted in response to a request by the Native
village corporation of Evansville, Incorporated that the route
not cross its land (slide 21). Slide 23 illustrated the
National Environmental Policy Act (NEPA) permitting process;
additional federal permits required are: through NEPA and Title
XI of ANILCA; environmental and economic analyses under ANILCA
Section 201(4); wetlands permits from the U.S. Army Corps of
Engineers (USACE); bridge permits from the U.S. Coast Guard
(USCG) (slide 24). He further explained ANILCA Section 201(4)
provides a unique process for an approved route and the analyses
process is overseen by the National Park Service (NPS), U.S.
Department of the Interior (slide 25).
MR. SPRINGSTEEN restated AIDEA is the applicant for the permits
and reviewed the roles of NPS and BLM (slide 26); in addition,
the BLM environmental impact statement (EIS) schedule was
provided on slide 27. Returning attention to the project
process illustrated on slides 16 and 29, he said AIDEA will
address subsistence and lifestyle concerns raised at federal
scoping meetings, and cautioned there remain significant
required approvals for the project such as legislative
authorization for bonds, regional approval, rights-of-way (ROWs)
from private landowners, and AIDEA project and bond
authorization (slide 30). Additional supporting information was
provided in the committee packet.
1:53:16 PM
REPRESENTATIVE PARISH asked Mr. Springsteen to further explain
AIDEA's "right-of-way options."
MR. SPRINGSTEEN said AIDEA does not have eminent domain
capabilities, thus ROWs must be negotiated with private
landowners.
REPRESENTATIVE PARISH gave an example of a private landowner who
does not grant a needed ROW and asked whether AIDEA would have
recourse.
MR. SPRINGSTEEN restated AIDEA's earlier response to a request
from a landowner.
1:54:38 PM
MARYELLEN TUTTELL, PE, Chief Risk Officer, DOWL, in response to
Representative Parish, explained substantial changes to the
corridor could require a supplemental (EIS); however, state
agencies seek to work with landowners to develop a route
acceptable to parties. The majority of the corridor crosses
state land, and there are portions on federal land and on land
owned by regional Native corporations.
REPRESENTATIVE PARISH inquired as to how many individual and
corporation landowners are affected.
MS. TUTTELL said the corridor crosses land owned by [Doyon
Limited (DOYON), NANA, and Native village corporations
consolidated within the NANA region. In further response to
Representative Parish, she stated there are no other private
landowners.
REPRESENTATIVE PARISH questioned whether the current favorable
positions of Doyon and NANA are unlikely to change.
MR. SPRINGSTEEN acknowledged AIDEA would need a permit for
access to begin binding negotiations.
CO-CHAIR JOSEPHSON recalled Doyon has expressed reticence about
the project.
MR. SPRINGSTEEN said yes. [AIDEA] considers all aspects of a
project such as risk, return, benefits, inducements, security,
collateral, cultural values, and lifestyle.
REPRESENTATIVE BIRCH expressed his understanding the route
through the Gates of the Arctic National Preserve was an access
route previously set aside within ANILCA.
MR. SPRINGSTEEN said yes; ANILCA, Section 201(4)(b), directs
federal agencies to select a route through the Gates of the
Arctic National Preserve.
1:59:23 PM
REPRESENTATIVE BIRCH, speaking as a mining engineer, expressed
his support for the project.
REPRESENTATIVE DRUMMOND referred to the financial agreement that
was in place between the operator of the Red Dog Mine and the
state prior to state funding and construction [of DMTS]. She
asked whether an entity has committed to repayment of the cost
of the Ambler access project.
2:00:28 PM
MR. SPRINGSTEEN explained AIDEA needs a permit to begin
negotiations on this topic as well; however, at "the proper
stage," he restated AIDEA will reexamine all aspects of the
project. In further response to Representative Drummond, he
opined he could not get approval from the AIDEA board of
directors [for the proposed project] without a contract from
mining companies for repayment.
CO-CHAIR JOSEPHSON returned attention to [slide 10] and
questioned Mr. Springsteen's statement that communities are not
interested in benefits such as a tax base to fund community
sustainability (energy, water/wastewater, transportation).
MR. SPRINGSTEEN clarified communities must search for an
economic engine that is compatible with the community, the
region, and the state; the scoping process allows communities to
do so.
REPRESENTATIVE LINCOLN asked Mr. Springsteen to discuss the EIS
timeline.
MR. SPRINGSTEEN returned attention to slide 27, noting NEPA
scoping was completed in January 2018, a scoping summary report
is due in April 2018, a draft EIS is anticipated in March 2019,
and a final EIS is anticipated in December 2019.
2:03:38 PM
REPRESENTATIVE LINCOLN questioned whether the EIS is funded.
MR. SPRINGSTEEN explained AIDEA has received $1.2 million for
the scoping process; a decision on further funding is dependent
upon a review of the scoping process by the administration. In
further response to Representative Lincoln, he said the decision
is anticipated in May or June [2018].
CO-CHAIR JOSEPHSON inquired as to whether AIDEA posts statements
in opposition to a project on its web site.
MR. SPRINGSTEEN said AIDEA provides background information on
its web site; information from communities is routinely garnered
through federal government processes. He suggested information
in this regard could be requested.
2:05:19 PM
GENE THERRIAULT, Team Lead, Interior Energy Project, AIDEA,
DCCED, speaking from his experience, advised the NEPA process is
robust regarding public comments and relating to the scope of
the project; any concerns brought forward, or questions posed by
the public, must have a response by the applicant.
MR. SPRINGSTEEN noted AIDEA's web site provides links to the
related federal web site.
REPRESENTATIVE PARISH surmised all of the documents found in the
committee packet are in opposition, and asked whether there are
letters of support from local elected officials representing the
affected region.
MR. SPRINGSTEEN opined the letters submitted to AIDEA expressed
interest in reviewing the results of the EIS process with all
the concerns addressed. He acknowledged there are different
voices within Native villages and Tribes.
REPRESENTATIVE PARISH restated his question related to
expressions of support from elected officials of local or Tribal
governments.
MR. SPRINGSTEEN said, at this time, AIDEA has not requested
formal letters of support, other than those of the EIS process,
from communities in the region.
2:08:47 PM
RICK VAN NIEUWENHUYSE, President/CEO, Trilogy Metals Inc., and
Director, NOVAGOLD, provided a PowerPoint presentation entitled,
"House Resources Committee Hearing on AMDIAP Presentation April
6, 2018 Advancing the Ambler Mining District in Alaska by
Forming Strong Partnerships." Mr. Van Nieuwenhuyse paraphrased
from the following written statement [original punctuation
provided]:
My name is Rick Van Nieuwenhuyse, I am an American
citizen and grew up in Alaska graduating from West
Anchorage High School in 1972. I left Alaska in 1994
to pursue my passion exploration geology, to work
all around world. Returning to North America in 1997
and decided to start my own exploration company
focussed here in Alaska - NovaGold. I first worked in
the Ambler mining district in 1977 it was my first
job as an exploration geologist with Kennecott
Minerals and then Anaconda. More recently, when I set
up NovaGold we started working in the district in 2004
we have been active every year since. We spun out
Trilogy Metals to our shareholders so that NovaGold
(where I remain on the Board and continue to be
involved with the company) along with our business
partners Calista, The Kuskokwim Corporation and
Barrick Gold could focus on advancing our 40 million
ounce Donlin Gold project which I am happy to report
is in the final stages of permitting with a ROD
expected later this year. That left Trilogy to focus
on advancing our interests in the Ambler mining
district. We formed a business partnership with NANA
in 2011 with the objective of developing the Ambler
mining district into a premiere mining camp. [Slide 2
US at Night].
2:11:25 PM
Before discussing the specifics of our project, I
would like to first talk about a topic of great
importance to all of us - Earth and how to
meaningfully address Climate Change and the effects of
Global Warming. As the only Arctic Nation in the US,
we feel these effects more acutely than anyone in the
lower 48.
Governments around the world are collaborating to
focus on addressing Climate Change and Global Warming.
The Paris Climate Accord adopted numerous measures to
"limit a global temperature rise this century below 2
degrees Celsius above pre-industrial levels".
Although there are many things that can be done to
address carbon emissions, the most meaningful and
obvious is to use cleaner forms of energy and
transportation.
Alaska has shown the world how energy resources can be
responsibly developed, spearheading Alaska's
transition from the rough and tumble new state I grew
up in, to one providing comprehensive quality
education, healthcare and transportation services for
its residents. All while being good stewards of the
environment. Currently, fossil fuels make up 90% of
both Alaska's revenues, and energy production on a
global scale. World leaders are trying to change that
energy mix to meaningfully address Global Warming.
While much of this transition is beyond our control,
one thing we can do is decide to remain only part of
the problem by continuing to produce oil, or become
part of the solution. [Slide 3 BP].
Great graphics - thank them. Point out more
consumption of energy and a transition to alternative
non-carbon energy? [Slide 4].
2:13:48 PM
BP predicts and Shell just published a similar report
with similar conclusions, that by 2040-2050 it will
require a mix of energy sources to meet worldwide
demand driven by a growing population and a global
improvement in lifestyle particularly in the
developing world and that is truly a great thing
?.what BP didn't point out in their slides is that
this transition requires a huge amount of copper.
[Slide 5 Alternative Energy Requires Copper].
Regardless of which forms of non-carbon-based energy
the world transitions to (Solar, Wind, Geothermal,
Hydro, or Nuclear), they all require more copper to
generate power. Conventional coal and diesel take 1
ton of copper to produce 1 Megawatt of power, whereas
Wind, Solar and the others require 3 to 5 tons per
MW?..plus additional copper wire to connect the power
generation source to the grid. Large off-shore Wind
generators like CIRI's Fire Island Wind Farm take 10
tons of copper per MW. Green Energy production
requires an average of 5 times more copper than
conventional, carbon-based energy generation. [Slide
6 Electric Cars].
2:14:17 PM
Now let's talk cars specifically hybrid and electric
cars. A typical Internal Combustion Engine (ICE)
vehicle uses 20kg of copper per vehicle while an all-
electric uses 80kg of copper. In addition to copper,
significant amounts of nickel, cobalt, manganese,
graphite and lithium are also needed. If you want to
replace ICE with hybrid or electric vehicles, then you
need 3 to 4 times as much copper per car??even more
for trucks, buses and mass transit. [Slide 7
Electric vehicles require more electricity?..more
copper?.5X].
More electric vehicles will require more power
generation and charging stations. Add it up and we
need 5 times more copper to build electric vehicles
and the infrastructure to support them. So, if we
want less CO2 going into the atmosphere, we need to
produce more copper under it! [Slide 8 Copper
Recycled].
The great thing about copper is that it's essentially
100% re-usable. Today, about 80% of the copper mined
is eventually recycled. New supply chains for
renewable energy, and hybrid and electric vehicles
will improve this to well above 95% - resulting in a
sustainable supply of copper and clean, green energy
and transportation. There are solutions to reducing
pollution and C02 in the atmosphere, but copper and a
host of other base and specialty metals are required
no way around it! In my opinion, if you are truly
concerned about Global Warming and consider yourself
an environmental steward of Planet Earth - you must
Think Copper! [Slide 9 Africa and Child Labor].
Now where does copper come from here is where we
have choices to make as a society. We can do nothing
and the earth keeps warming up; we can do nothing in
our backyard leaving it to others to fill our global
need for copper and cobalt knowing that it may involve
child labor, corruption and human rights atrocities
(see Amnesty International Report on mining in Africa:
https://www.amnesty.org/en/latest/news/2017/11/industr
y-giants-fail-to-tackle-child-labour-allegations-in-
cobalt-battery-supply-chains/),
[Slide 10 Water and Copper ].
or in the Andean countries of South America - Peru,
Ecuador, Argentina and Chile where over 50% of the
world's copper production is mined..?often displacing
water used by farmers and causing serious social
unrest see
http://www.bioone.org/doi/pdf/10.1659/mrd.1039. These
two areas combined are where about 70% of the world's
copper and cobalt comes from?.or we can support mining
in Alaska - a jurisdiction with a long history of
responsible resource development and absolutely no
history of any significant mining disasters.
2:17:45 PM
A prime opportunity for Alaska to contribute to both
this global transition, and our own economic self-
determination lies in the Ambler Mining District
(AMD): a high quality, well known mining district
containing over 10 Billion Pounds copper, significant
cobalt and a host of other metals; where the State of
Alaska and NANA, an Alaska Regional Native
Corporation, specifically made land selection for
mining as a result of the Alaska Native Claims
Settlement Act (ANCSA) and Alaska National Interest
Lands Conservation Act (ANILCA) legislation; and that
the Federal Government specifically granted a Right-
of-Way to connect this metal-rich district with the
Dalton Hwy and the rest of Alaska's infrastructure.
Specifically, Section 201(4) of ANILCA states:
"Congress finds that there is a need for access for
surface transportation purposes across the Western
(Kobuk River) unit of the Gates of the Arctic National
Preserve (from the Ambler Mining District to the
Alaska Pipeline Haul Road) and the Secretary [of the
Interior] shall permit such access." (Emphasis
added.)
Congress made it very clear what was intended with
this unique and specific language in ANILCA.
[Slide 11 World at Night].
To put what is already known about the mineral
resources in the AMDs into perspective, there are
already 10 Billion Lbs of copper identified in the AMD
- that could be used to build 56 million EV's and
reduce CO2 entering the atmosphere by 250 million
metric tonnes every year. Remember copper is 100% re-
cyclable so these C02 reductions are sustainable!
How much CO2 will be emitted by the Ambler mining
complex to mine 10 B lbs of Copper that could generate
these annual global CO2 reductions? Our plan is to
use Liquid Natural Gas (LNG) from the Titan plant near
Wasilla for on site power generation to run the mill
that results in ~ 75,000 tonnes CO2/year on site +
transportation and copper refining emissions to
produce usable copper metal totals ~200,000 tonnes of
C02/year. That's over 10 to 1 return on investment in
terms of C02 reduction.
2:19:30 PM
Alaska is a State that produces a lot of oil and will
for the foreseeable future. Although we need to
diversify our economy as a part of this global energy
transition and wean ourselves off being so dependent
on oil, it will take time. It won't happen over
night, but it is something we must work towards - a
diversified economy is a stronger economy.
Alternative forms of energy and electric vehicles can
help enormously to reduce C02 emissions and provide a
sustainable solution to reducing greenhouse gas
emissions?.but it requires copper. [Slide 12 UKMP].
Let me introduce you to the Ambler Mining District and
our Upper Kobuk Mineral Projects where we are
developing two high quality copper projects. BTW
the Caribou antler is our logo to remind us of how
important the Caribou is to subsistence hunting in the
region.
2:20:23 PM
[Slide 13 Bornite Camp 80 people typically
working in the summer with upper 55% to 65% local
shareholder hire]. [Slide 14 NANA Region].
Business Partnership with NANA OC reviews and
approves budgets?.Communications
Committee?..Subsistence Committee??.Work Force
Development Committee
Last year Willie Hensley joined Trilogy Board of
Directors particularly proud that he agreed to join
our Board because I did a paper on Willie my
graduating year at West High in Anchorage on his role
in Native Alaskan rights and his role in the ANCSA
legislation. He will be a valuable member of our
Board of Directors. [Slide 15 Map of UKMP].
Explain [Slide 16 Local Hire and Community
Engagement].
Meet three times a year review activities on the
project, discuss concerns and accept job applications.
Strict zero tolerance drug and alcohol policies
enforced. [Slide 17].
3D model of the UKMP project area assists with project
and community concerns discussions. [Slide 18
Arctic].
10 times the average grade being mined today in open
pit mines around the world
Drilled
163 holes have ben drilled plus a number of Geotech
and hydrology holes
2:23:01 PM
This summer we will drill an additional dozen Geotech
holes along with another dozen hydrology hole. These
will be used to continue to advance our hydrological
model for the area around the mining and related
facilities area in preparation for our feasibility
study and permit application documents.
BTW I should probably tell you a little more about
Trilogy Metals we are a publicly listed company
based in Vancouver, BC. We are listed on the NYSE
what they call the American Exchange where about 90%
of our shares trade. We are also listed in Toronto.
Our shareholder base is about 85% America with some
Canadian, European and Asia (Hong Kong) shareholders.
Our major shareholders include Tom Kaplan's Electrum
Group; John Paulson's Paulson and Co. ; Seth Karmen's
Baupost and South 32, our strategic business partner
and one of the largest mining companies in the world
that bring a huge amount of technical and operating
experience to the team these are large, well know,
sophisticated investors and together with management
control about 65% of the company. We are NOT a fly-
by-night junior explorer. As I mentioned, I was the
founder of NovaGold and the huge discovery at Donlin
where we formed a 50/50 partnership with Barrick Gold
and now after 5 years of permitting we look forward
to getting a ROD so we can build a world class mine
there in partnership with Calista and TKC. I grew up
here in Alaska and have worked extensively throughout
the State and have deep roots and experience here and
I am passionate and proud of our accomplishments. But
none more than Nicole Tickett. [Slide 19 Nicole
Tickett]. [Slide 20 - PFS].
Review Arctic PFS results
This is a very robust project -$1.4B NPV8%...33% post
tax IRR and with a two year payback. We will of
course drill additional holes to define measured
resources/proven reserves when we complete our
feasibility study and stage gate process next year. I
should mention at all of these estimates are done by
independent third party consultants Ausenco did the
mill design; AMEC Foster Wheeler did the open pit
Mineral Reserves and SRK did the tailings and waste
rock facilities design. [Slide 21 Speaking of
which?..Subarctic Creek valley]. [Slide 22
Tailings/Dam/Wasterock facilities]. [Slide 23 Why
do we need a road??].
Concentrates of copper, zinc and lead containing
precious metals gold/silver. Road to Fairbanks then
Alaska Railroad to Port of Anchorage. Each box will
contain 28 tonnes of concentrates. BTW in case you
are wondering it is long haul over 800 miles to
Anchorage?.these concentrates are all valued in excess
of $2000/tonne. Transportation costs along the road
and rail route will be $175/tonne Lynden did the
estimate they move much of what is transported in
Alaska so it is a good number. It represents less
than 10% of the contained value. Fairly typical for
land transportation costs on a worldwide comparative
basis. [Slide 24 27 walk through the Qube
Logisitics slides]. [Slide 28 Ambler district?].
district exploration?].
Like Red Dog with additional exploration there will be
additional Resources and Reserves remember this is a
well known mineral district that NANA and the State of
Alaska specifically made land selection here for that
reason??.Bornite deposit where we are working on our
second project. [Slide 29 Review Bornite].
2:26:06 PM
our Bornite project located just 20 miles to the
southwest of Arctic. We have already outlined a
resource in excess of 6 Billion pounds of copper
averaging nearly 1% in a potential open pit resource
and 3% in a potential underground resource. This year
we will be back exploring with a $10 Million
exploration program with the objective of expanding
the already sizeable resource. In addition, based
upon a significant amount of geometallurgical test
work, we will be reporting a cobalt resource at
Bornite in Q2 of 2018. With keen investor interest in
a North American source for cobalt an essential
ingredient in new battery technology for electric
vehicles, we feel that our cobalt at Bornite will add
to value already established. Once again, it will be
a busy year for the Trilogy Team.
In total Trilogy has expended about $100M - $60M at
Arctic and $40M at Bornite not including our $15M
program planned for 2018. [Slide 30].
So, there you have it alternative forms of energy
and electric vehicles can help enormously to reduce
C02 emissions and provide a sustainable solution to
reducing greenhouse gas emissions, but this Green
Energy solution requires copper a 100% re-cyclable
metal. [Slide 31 Planet Earth].
It's a beautiful place?.but global warming is a global
issue.
The choice is ours do we support mining copper and
cobalt here in Alaska and be part of a sustainable
energy solution, or do nothing and remain only part of
the problem by outsourcing production of these
resources to jurisdictions out of sight and out of
mind?
Thank you!
2:30:17 PM
REPRESENTATIVE PARISH returned attention to slide 19 and asked
whether the shown 33 percent internal rate of return (IRR),
during a mine life of 12 years, was based on proven deposits or
on proven and inferred deposits.
MR. VAN NIEUWENHUYSE said the category is probable; when
completed, the feasibility study of measured and indicated
resources will reveal proven and probable reserves.
REPRESENTATIVE PARISH observed the Arctic prefeasibility study
(PFS) projects a mine life of 12 years; however, the proposed
road projects a payback period of 30 years. He asked whether
Trilogy would still be working in the region in 30 years.
2:32:16 PM
MR. VAN NIEUWENHUYSE said yes. For economics, Trilogy seeks to
spend its money on geology. The study outlined a mine life of
12 years, although the Arctic [Mine] prospect holds more
resources and the mine would probably expand underground.
Further, there are reports that identified an additional 40
million tons of historic resources in the district.
REPRESENTATIVE PARISH noted the Ambler access project may be a
good investment but there seems to be unanimous local
opposition. He questioned whether Trilogy could garner support
for the project.
MR. VAN NIEUWENHUYSE restated the project is following the EIS
process that includes hearing concerns and addressing concerns.
Trilogy participates in a lot of community engagement in the
region to discuss topics such as the number of trucks on the
road and their payloads, and river crossings. Mine permitting
will follow, "hopefully within the next year or two."
CO-CHAIR JOSEPHSON observed [Donlin Gold] will finance its
infrastructure and questioned why Trilogy would not.
2:35:56 PM
MR. VAN NIEUWENHUYSE said Trilogy has entered into a partnership
with AIDEA and has spent $100 million exploring and developing
mineral deposits within the district. In most of the U.S. and
the world, governments build infrastructure and the Red Dog Mine
[and DMTS model have] demonstrated that a public-private
partnership approach makes sense because AIDEA has a
significantly lower cost of capital; for example, Trilogy plans
an 8 percent rate for a mining project, whereas AIDEA would
expect a 4 percent rate for an infrastructure project.
CO-CHAIR JOSEPHSON pointed out AIDEA anticipates receiving
payment in full for its investment [in the Ambler access
project] and asked, "Is that something Trilogy intends to do
too?"
MR. VAN NIEUWENHUYSE responded, "That's certainly what our
expectation is ...."
CO-CHAIR JOSEPHSON asked how Trilogy's economics would be
affected if the state declines to invest in building the road.
MR. VAN NIEUWENHUYSE acknowledged Trilogy's cost of capital
would increase, which would affect the project's rate of return;
however, operating costs would not be changed significantly
except for financing the cost of the road. He stressed the
project is a robust project that can afford to pay for the road
if the price of copper remains at [$3 USD/lb].
2:39:06 PM
REPRESENTATIVE BIRCH, speaking from his experience, said the Red
Dog Mine has greatly improved lives in Northwest Alaska.
Further, the extension of the road from Manly Hot Springs to
Tanana has reduced costs for residents, as have ice roads for
surface access into Utqiagvik and other communities.
REPRESENTATIVE JOHNSON expressed her understanding AIDEA would
have other mining companies that would pay for the road and may
garner a profit from tolls. She observed Donlin Gold is a good
example of a mining company working with affected communities in
a positive way, and asked about Trilogy's engagement with local
communities.
MR. VAN NIEUWENHUYSE recalled in over 20 years, NovaGold
displayed "frequent, open, and honest communication and hearing
what the problems are." He said he is associated with Donlin
Gold and supports how it does business in the Yukon-Kuskokwim
region. Trilogy has the same approach and has met two to three
times each year with the Kobuk River villages to answer
questions raised during the exploration period.
2:43:35 PM
REPRESENTATIVE DRUMMOND pointed out Trilogy is asking the state
to build a road covering a distance equal to that of traveling
from Wisconsin to Montana; she said she seeks to ensure the
state would be repaid for building the road. She returned
attention to slide 21 which illustrated a "huge rock dam and
water high above your pit, I believe, and considering the
carelessness of some other mining companies, this kind of thing
is very concerning to me." Representative Drummond asked for
clarification of Mr. Van Nieuwenhuyse's association with
NovaGold and NovaCopper.
MR. VAN NIEUWENHUYSE informed the committee he founded NovaGold
and the company was split into two different companies, NovaGold
and NovaCopper; NovaCopper was changed to Trilogy to avoid
confusion with NovaGold.
REPRESENTATIVE DRUMMOND asked whether Mr. Van Nieuwenhuyse is
associated with the Rock Creek Mine in Nome.
2:46:29 PM
MR. VAN NIEUWENHUYSE said the [Alaska Gold Company] mine project
was shut down; during the time period [of operation] there was a
recession and it was difficult to raise money, so the project
did not go forward. The site was reclaimed, and the company's
assets and land were sold to the Bering Straits Native
Corporation. He recalled some of the project's major
shareholders went out of business during the recession; however,
the mine was properly closed, and the land reclaimed.
REPRESENTATIVE DRUMMOND stated all Alaska residents are aware of
the state's financial situation; in fact, the state is having
its own depression. She remarked:
And your company is asking us to build a road, so that
your company may profit from that and I'm ... hoping
that we're going to hear how you're going to help us
do that.
MR. VAN NIEUWENHUYSE said Trilogy is not asking the state to
build the road but is partnering with AIDEA and following what
is known as a public-private partnership utilized around the
world. He agreed the infrastructure needed to develop the
Ambler Mining District is significant. Further, [the state's
investment in] the Red Dog Mine and DMTS has made a huge
improvement in Northwestern Alaska. He stressed the project
would not be built without a feasibility study level document
indicating Trilogy could pay the toll.
REPRESENTATIVE DRUMMOND added, "and ... that the communities
along the way will, will appreciate it and support it."
REPRESENTATIVE LINCOLN asked how much DMTS cost to construct.
MR. SPRINGSTEEN advised DMTS is not a perfect "mirror" for the
Ambler access project because DMTS provided other infrastructure
such as a port, a conveyor system, a warehouse, and a camp, that
are not contemplated in the proposal.
2:50:09 PM
REPRESENTATIVE LINCOLN restated his question.
MR. SPRINGSTEEN estimated total cost, in today's dollar
equivalent, for a 52-mile road would be $50 million to $60
million.
REPRESENTATIVE LINCOLN asked how much the state receives
annually from the Red Dog Mine for the use of DMTS.
2:51:03 PM
BRENDA APPLEGATE, Chief Financial Officer, AIDEA, DCCED,
informed the committee AIDEA receives its annual assessment for
DMTS plus a 6.5 rate of return. The rate of return becomes a
portion of AIDEA's dividend base and, within the statutory
limitation, part of that returns to the state. Therefore, the
state will recoup the cost of construction plus the rate of
return. In addition, there are price sensitive and tonnage
sensitive payments which enable AIDEA to pay down the principal
of its investment in the project, and to pay into a reserve
account shared between AIDEA and the mine operator, Teck Alaska,
Inc.
2:53:19 PM
DAVID G. CLARKE provided a PowerPoint presentation entitled,
"Ambler Mining District Industrial Access Road Project," and
paraphrased from the following written testimony [original
punctuation provided]:
Mr. Chairman, members of the committee, for the record
my name is David Clarke. I am a private citizen and I
appreciate the opportunity to provide comments to the
House Resources Committee on the Ambler Mining
District Industrial Access Road Project.
? I am a Project Management Professional with 38 years
of oil & gas industry experience, working on major
capital projects around the world, including 11 years
here in Alaska. ? I am supportive of resource
development in Alaska, including the Ambler Road
project, but I am strongly against high risk, low
reward projects that are likely to destroy value for
the State. ? I think that the State, like all
successful private companies, should always adhere to
Warren Buffett's 2 Rules of Investing: Rule 1: Never
lose money; Rule 2: Never forget rule 1.
I have reviewed the Ambler Road project from a
Project Management perspective and my findings are as
follows: (Slide 2)
1. Reward must be commensurate with risk and the
Ambler Road project is currently wildly skewed in
favor of the mining companies to the detriment of the
State of Alaska. 2. If the Ambler Mining District is
economically viable, the mining companies should be
willing to collectively enter into a joint venture
with the State to fund the Ambler Road Project. 3. If
the mining companies are unwilling to put some of
their own money at risk in the Ambler Road Project,
then this should be a huge red flag and the State
should abandon the project. 4. If the project is
restructured to fairly share the risk and reward
between the State and the mining companies then it
could be a win-win for everyone. 5. The Ambler road
project as currently configured plays the age-old game
of privatizing profits while socializing costs.
2:55:42 PM
Let me explain the basis for these findings:
Firstly, I'll talk about the many shortcomings that I
see in the current Ambler road project and then share
with you my suggestions on how it could be
restructured to more fairly share the risk/reward
balance between the State (AIDEA) and the mining
companies.
In the private sector, where I have reviewed large-
scale multi-billion-dollar projects for over 15 years,
companies frequently have more potential projects that
they would like to progress than they have funds (or
resources) to complete. A situation not unlike the one
that the State of Alaska now finds itself. Successful
companies have adopted a rigorous "stage gate process"
(slide 3) in which funding is released in stages as
more detailed information becomes available. To get
through each stage gate, the project team must provide
a rigorous justification to peers and stakeholders
showing that the project adds value and is a
competitive use of the available funds.
It is very important that the review team for a
project decision is made up of multiple relevant
subject matter experts who are independent, i.e. they
do not have a stake in the project outcome, otherwise
bias can creep in.
Given what I know about the Ambler Road project it
would not pass a rigorous and independent stage gate
review for the following 4 reasons: (slide 4)
1. 100 percent of the project risk of cost overruns is
borne by AIDEA and none by the mining companies who
ultimately benefit from the road. 2. The reported NPV
of $85-90M is calculated assuming a discount rate of
just 3.9 percent and hence the project will be
considerably underwater or negative at a more normal
risk adjusted discount rate of 8-10 percent. AIDEA
plans to finance the project with municipal bonds at
an interest rate of around 2.75 percent. I assume the
reason the rate is so low, for such a high-risk
project, is that these are general obligation bonds
and that the State (you and I) are guaranteeing any
revenue shortfall. 3. Revenue from the project is
solely from tolls which are dependent on 4 mines that
may be developed in the Ambler District: Trilogy's
Arctic and Bornite mines; Teck Resource's Smucker mine
and the Sun mine whose former owner went bankrupt. 4.
The minerals on which the Ambler Road project will
rely for tolls are largely classified as indicated or
inferred resources, or in the best case probable
reserves rather than proven reserves (economically
mineable). No exploration work is currently ongoing at
either Sun or Smucker. Consequently, there is a high
risk that some or all of the mines may prove
uneconomic and not developed.
In summary the potential reward for success on the
Ambler road is not commensurate with the project's
high risk.
I'd like to share with you the work that I did on a
project in the eastern Gulf of Mexico (GOM) that may
be analogous to Ambler and provide some insights. I
appraised a relatively small gas resource that was in
a very remote region with no infrastructure not
unlike Ambler. The prospect was hopelessly uneconomic,
it just couldn't support the large costs to build out
the infrastructure necessary to get the product to
market.
2:59:38 PM
Given that there were similarly challenged resources
in the region, we met with the other field owners and
it was apparent that the only way to develop the
resources in this region was to join forces and share
the costs of building out the infrastructure. To do
this we formed a Joint Venture company to build, own
and then operate the infrastructure. In hindsight, it
never occurred to us to ask the State of Louisiana to
build the infrastructure for us. Key to success was
developing all 3 fields and the infrastructure to
access the resources concurrently. So, in this GOM
project the resource developers took 100 percent of
the infrastructure project risk and the State of
Louisiana did not take any risk, but instead
benefitted from royalties and corporate taxes.
Another analogue here in Alaska would be the TAPS
which was financed, built and operated by a JV
company, Alyeska, comprised largely, but not
exclusively, of the resource developers. So, with
Alyeska and Ambler you have 2 ends of a spectrum from
0 percent to 100 percent state ownership in the
infrastructure necessary to get resources to market.
I would suggest that a similar Joint Venture company
should be explored to build and operate the Ambler
Road with the principle mining companies and AIDEA as
partners.
This Joint Venture arrangement has a number of
significant benefits over the current Ambler Road
structure: (Slide 5)
1. The project risks of cost overruns and/or revenue
shortfalls would be more equitably split between AIDEA
and the mining companies. 2. There would be greater
scrutiny of the road cost estimate by the mining
companies, who would now be putting their own capital
at risk. There is always a tendency to low-ball the
cost estimate to get a project approved and worry
about the consequences later. 3. The best people to
determine the true viability of the various mines are
the mining companies. If they are not prepared to put
some of their own money at risk in the road, then this
should be a huge red flag and the State should abandon
the project. Remember Rule 1. 4. Greater chance that
the road development and at least one anchor mine will
take place concurrently as the mining companies will
not want to tie up capital in a road that may not
generate any revenue. It also reduces the risk that
resource development does not take place at all, as
was the case for the Umiat road project and the Point
MacKenzie rail spur.
The track record of State sponsored infrastructure
projects to support resource developments is not good.
The State spent some $35M on studying a road to the
Umiat Oil field, before the developer Linc. Energy
went bankrupt. Also, the State spent $184 million on
the partially completed Pt MacKenzie rail extension
based on very optimistic projections of coal, ore,
cement, and woodchip developments which are still to
materialize.
3:02:40 PM
MR. CLARKE, in response to Co-Chair Josephson, restated the
state spent $35 million on a road to the Umiat oil field and
$184 million on the Port MacKenzie rail extension; the project
in the Gulf of Mexico was the Canyon Express Gas Field.
REPRESENTATIVE BIRCH asked for a summary of Mr. Clarke's
experience related to this issue.
MR. CLARKE restated his interest as a private citizen in the
undue risk posed to the state by the Ambler access project. He
returned to his written testimony as follows [original
punctuation provided]:
When you compare the published projected economics of
the Ambler Road and the Arctic mine there is a huge
disparity between the risks and rewards experienced by
AIDEA and Trilogy. I reviewed this very recent
corporate presentation by Trilogy on Advancing the
Ambler Mining District (Slide 6). This is Slide 27
from the presentation on the inputs and economic
results of the Arctic Mine Preliminary Feasibility
Study. I've put a star next to the 3 key economic
results (NPV, IRR and payback) for the Arctic Mine.
These are the corresponding numbers from AIDEA's
website on the toll payments. (Slide 8)
3:04:37 PM
I recognize that Trilogy may be guilty of an optimism
bias while presenting the Arctic mine results.
Nevertheless, if we take them at their word this is
how the economics of the AIDEA's Ambler Road and
Trilogy's Arctic Mine compare: (Slide 9)
AIDEA Ambler Road Trilogy Arctic Mine Initial capital
expenditure $380 million $780 million Ambler road cost
overruns 100 percent AIDEA 0 percent Trilogy Risk of
shortfall in toll revenue 100 percent AIDEA 0 percent
Trilogy Internal Rate of Return Estimated at 4-5
percent 38 percent Payback 30 plus years (if ever) 1.9
years Net Present Value (after tax) $84 to $90 million
at 3.9 percent Negative at 8 percent $1,413 million at
8 percent
It is very clear from this table that the relative
risks/rewards of the 2 projects are wildly skewed in
favor of the mining companies to the detriment of the
State of Alaska. In fact, AIDEA's Ambler road deal is
by far the worst deal that I've ever seen!
Based on Trilogy's economic projections the Arctic
Mine could easily finance 100 percent of the road
construction; payback would increase from just under 2
to about 3 years which is still stellar; NPV would
decrease a little as trading upfront capital for
operating tolls, but I'd estimate it would still be
well north of $1 billion.
To conclude: (Slide 10) ? Reward must be commensurate
with risk and on the Ambler Road project it is
currently wildly skewed in favor of the mining
companies to the detriment of the State of Alaska. ?
If the Ambler Mining District is economically viable,
the mining companies should be willing to collectively
enter into a joint venture with the State to fund the
Road Project. ? If the mining companies are unwilling
to put some of their own money at risk in the Road
Project, then this should be a huge red flag and the
State should abandon the project. ? If the project is
restructured to fairly share the risk and reward
between the State and the mining companies then it
could be a win-win for everyone. ? The Ambler Road
project as currently configured plays the age-old game
of privatizing profits while socializing costs.
3:06:48 PM
CO-CHAIR JOSEPHSON surmised from the projected rate of return of
the project, "the tax rate needs changing...."
MR. CLARKE cautioned, because the presentation was shown to
investors, the projected rate of return may reflect "a more
optimistic economic result." In further response to Co-Chair
Josephson, he said he is a chemical engineer by profession, who
spent thirty-five years in the oil industry, and has been
consulting for the last three years for smaller exploration
companies. He said he was asked by a colleague who works with
The Wilderness Society to analyze the project, and is a resident
of Anchorage.
REPRESENTATIVE DRUMMOND returned attention to slide 9 and
restated the cost of the road is $380 million, the cost to build
the Arctic Mine is $780 million, and after the road is built it
would be worth $84 to $90 million.
MR. CLARKE clarified $380 million is the cost for all phases of
construction to a two-lane highway. Also, the AIDEA figures
assume that all four mines are developed, but the Trilogy
figures are for only the Arctic Mine.
3:09:42 PM
REPRESENTATIVE PARISH inquired as to the discount rate to the
state of 8 percent.
MR. CLARKE advised an 8-10 percent discount rate is commonly
used to analyze projects and represents the cost of capital.
REPRESENTATIVE BIRCH urged the committee to schedule additional
opportunities for public testimony on this issue.
REPRESENTATIVE LINCOLN surmised AIDEA would need additional
authorization from [the legislature] before advancing the
project; he asked why Mr. Clarke cautioned that other private
mining companies would not join in the partnership with AIDEA.
MR. CLARKE opined in order for companies to be committed to a
project, they need to make a capital investment and not just
sign papers.
3:12:05 PM
REPRESENTATIVE TALERICO questioned whether Mr. Clarke assumed
the state will never complete the rail extension to Port
MacKenzie.
MR. CLARKE said no. He explained he referred to Port MacKenzie
because a study projected revenues to the state of over $4
billion, but the expected development has not occurred, and he
urged for caution in regard to promises to develop resources
without a firm financial investment; in fact, resource
development and infrastructure development should occur
simultaneously.
3:13:15 PM
REPRESENTATIVE TALERICO expressed his belief there will be a
large railyard at Port MacKenzie one day. Furthermore, although
AIDEA can operate as a business partner, its mission as a
publicly-held corporation, and a subdivision of the state, is to
help develop projects, and also to create short-term and long-
term employment opportunities in regions of the state.
REPRESENTATIVE BIRCH asked whether DMTS was a good investment.
MR. CLARKE said yes.
3:14:59 PM
ADJOURNMENT
The meeting of the House Resources Standing Committee was
recessed at 3:14 p.m., to 4/7/18 at 2:00 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| HB331 Transmittal Letter.pdf |
HRES 3/30/2018 1:00:00 PM HRES 4/4/2018 1:00:00 PM HRES 4/6/2018 1:00:00 PM HRES 4/7/2018 2:00:00 PM HRES 4/9/2018 1:00:00 PM HRES 4/10/2018 8:00:00 AM |
HB 331 |
| HB331 Version A.PDF |
HRES 3/30/2018 1:00:00 PM HRES 4/4/2018 1:00:00 PM HRES 4/6/2018 1:00:00 PM HRES 4/7/2018 2:00:00 PM HRES 4/9/2018 1:00:00 PM HRES 4/10/2018 8:00:00 AM |
HB 331 |
| HB331 Fiscal Note -DNR-DOG 1.29.18.pdf |
HRES 3/30/2018 1:00:00 PM HRES 4/4/2018 1:00:00 PM HRES 4/6/2018 1:00:00 PM HRES 4/7/2018 2:00:00 PM HRES 4/9/2018 1:00:00 PM HRES 4/10/2018 8:00:00 AM |
HB 331 |
| HB331 Fiscal Note-DOR-TAX 2.5.18.pdf |
HRES 3/30/2018 1:00:00 PM HRES 4/4/2018 1:00:00 PM HRES 4/6/2018 1:00:00 PM HRES 4/7/2018 2:00:00 PM HRES 4/9/2018 1:00:00 PM HRES 4/10/2018 8:00:00 AM |
HB 331 |
| HB331 Supporting Document - Presentation Credit Bonds for HRES 3.30.18.pdf |
HRES 3/30/2018 1:00:00 PM HRES 4/6/2018 1:00:00 PM HRES 4/7/2018 2:00:00 PM HRES 4/9/2018 1:00:00 PM HRES 4/10/2018 8:00:00 AM |
HB 331 |
| HB331 Supporting Document - DOR.LAW 3.2.18.pdf |
HRES 3/30/2018 1:00:00 PM HRES 4/4/2018 1:00:00 PM HRES 4/6/2018 1:00:00 PM HRES 4/7/2018 2:00:00 PM HRES 4/9/2018 1:00:00 PM HRES 4/10/2018 8:00:00 AM |
HB 331 |
| HB331 Sectional Analysis 3.29.18.pdf |
HRES 3/30/2018 1:00:00 PM HRES 4/4/2018 1:00:00 PM HRES 4/6/2018 1:00:00 PM HRES 4/7/2018 2:00:00 PM HRES 4/9/2018 1:00:00 PM HRES 4/10/2018 8:00:00 AM |
HB 331 |
| HB331 Supporting Document - Letter of Support 3.29.18.pdf |
HRES 3/30/2018 1:00:00 PM HRES 4/4/2018 1:00:00 PM HRES 4/6/2018 1:00:00 PM HRES 4/7/2018 2:00:00 PM HRES 4/9/2018 1:00:00 PM |
HB 331 |
| HB331 Credit Bonds for HRES 4-2-18.pdf |
HRES 4/4/2018 1:00:00 PM HRES 4/6/2018 1:00:00 PM HRES 4/9/2018 1:00:00 PM |
HB 331 |
| AOGA Testimony - HB 331 - 4.4.2018.pdf |
HRES 4/4/2018 1:00:00 PM HRES 4/6/2018 1:00:00 PM HRES 4/7/2018 2:00:00 PM HRES 4/9/2018 1:00:00 PM |
HB 331 |
| Ambler_APRN article 1.30.18.pdf |
HRES 4/6/2018 1:00:00 PM HRES 4/9/2018 1:00:00 PM |
Ambler AMDIAR |
| Ambler_AIDEA PPT.pdf |
HRES 4/6/2018 1:00:00 PM |
|
| Ambler_AIDEA statutes re Regional Resource Advisory Council review.pdf |
HRES 4/6/2018 1:00:00 PM |
|
| Ambler_Cardno econ analysis excerpts.pdf |
HRES 4/6/2018 1:00:00 PM |
|
| Ambler_DOT May 2012 Report, Excerpt.pdf |
HRES 4/6/2018 1:00:00 PM |
|
| Ambler_DOWL AIDEA Cost Estims 2.26.18.pdf |
HRES 4/6/2018 1:00:00 PM |
|
| Ambler CSPP PPT.pdf |
HRES 4/6/2018 1:00:00 PM |
|
| Ambler CSPP invited testimony.pdf |
HRES 4/6/2018 1:00:00 PM |
|
| Ambler_Clarke PPT.pdf |
HRES 4/6/2018 1:00:00 PM |
|
| Ambler_Clarke invited testimony.pdf |
HRES 4/6/2018 1:00:00 PM |
|
| Ambler_Trilogy Metals PPT.pdf |
HRES 4/6/2018 1:00:00 PM |
|
| Ambler_Doyon ltr to BLM 1.24.18.pdf |
HRES 4/6/2018 1:00:00 PM |
|
| Ambler_Trustees' Follow-up Letter to BLM re Leg Hearing.pdf |
HRES 4/6/2018 1:00:00 PM |
|
| Ambler_v_Allakaket Opposition Resolution.pdf |
HRES 4/6/2018 1:00:00 PM |
|
| Ambler_v_Ambler Opposition Resolution.pdf |
HRES 4/6/2018 1:00:00 PM |
|
| Ambler_v_Bettles Opposition Resolution.pdf |
HRES 4/6/2018 1:00:00 PM |
|
| Ambler_v_Evansville Opposition Resolution.pdf |
HRES 4/6/2018 1:00:00 PM |
|
| Ambler_v_Huslia Opposition Resolution.pdf |
HRES 4/6/2018 1:00:00 PM |
|
| Ambler_v_Kobuk Opposition Resolution.pdf |
HRES 4/6/2018 1:00:00 PM |
|
| Ambler_v_Kotzebue Opposition Resolution.pdf |
HRES 4/6/2018 1:00:00 PM |
|
| Ambler_v_Koyukuk Opposition Resolution.pdf |
HRES 4/6/2018 1:00:00 PM |
|
| Ambler_v_Louden Opposition Resolution.pdf |
HRES 4/6/2018 1:00:00 PM |
|
| Ambler_v_Rampart Opposition Resolution.pdf |
HRES 4/6/2018 1:00:00 PM |
|
| Ambler_v_Ruby Opposition Resoulution.pdf |
HRES 4/6/2018 1:00:00 PM |
|
| Ambler_WIRAC 2017 Letter.pdf |
HRES 4/6/2018 1:00:00 PM |