Legislature(1995 - 1996)
04/19/1995 03:38 PM Senate RES
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SENATE RESOURCES COMMITTEE
April 19, 1995
3:38 P.M.
MEMBERS PRESENT
Senator Loren Leman, Chairman
Senator Drue Pearce, Vice Chairman
Senator Robin Taylor
Senator Georgianna Lincoln
Senator Lyman Hoffman
COMMITTEE MEMBERS ABSENT
Senator Steve Frank
Senator Rick Halford
COMMITTEE CALENDAR
Mining Overview and Alaska Minerals Commission Report with Dr. Earl
Beistline
SENATE RESOLUTION NO. 2
Opposing a proposed international convention classifying coal as a
hazardous and noxious material.
SENATE BILL NO. 130
"An Act relating to marine pilots and the Board of Marine Pilots;
extending the termination date of the Board of Marine Pilots; and
providing for an effective date."
CS FOR HOUSE BILL NO. 197(RES)
"An Act providing for exploration incentive credits for activities
involving locatable and leasable mineral and coal deposits on
certain land in the state; and providing for an effective date."
PREVIOUS SENATE COMMITTEE ACTION
SR 2 - See Resources minutes dated 4/12/95.
SB 130 - See Resources minutes dated 3/20/95 and 4/12/95. See
Resources Subcommittee minutes dated 3/23/95 and 4/6/95.
HB 197 - No previous action to record.
WITNESS REGISTER
Earl Beistline
Alaska Minerals Commission
P.O. Box 80148
Fairbanks, AK 99708
Eric Neal MacKinnon
Alaska Minerals Commission
1114 Glacier Ave.
Juneau, AK 99801
POSITION STATEMENT: Supported HB 197.
Karl Hanneman
Alaska Minerals Commission
P.O. Box 10664
Fairbanks, AK 99710
POSITION STATEMENT: Supported HB 197.
Charles Boddy
Alaska Coal Association
Usibelli Coal Mine
122 First Ave., #302
Fairbanks, AK 99701
POSITION STATEMENT: Supported SR 2.
Tom Crafford, Manager
Minerals and Coal
Cook Inlet Region, Inc.
2525 C St. #500
Anchorage, AK 99503
POSITION STATEMENT: Supported SR 2.
Paul Valenti, Vice President
Operations
USMX
141 Union Blvd., Suite 100
Lakewood, CO 80228
POSITION STATEMENT: Commented on the mining industry.
Doug Horswill, Vice President
Environment and Public Affairs
Cominco
5430 Cliff Ridge
N. Vancouver, B.C.
POSITION STATEMENT: Commented on the mining industry.
George Cole, Vice President
Exploration
Cominco
Spokane, WA
POSITION STATEMENT: Commented on the mining industry.
Bill Jeffress
Fairbanks Gold Mining
P.O. Box 73726
Fairbanks, AK 99707-3725
POSITION STATEMENT: Commented on the mining industry.
Steven Borrel
Alaska Miners Association
501 West Northern Lights Blvd.
Anchorage, AK
POSITION STATEMENT: Commented on the mining industry.
John Walsh, Legislative Aide
Representative Richard Foster
State Capitol
Juneau, AK 99801-1182
POSITION STATEMENT: Sponsor of HB 197.
Deborah Vogt, Deputy Commissioner
Department of Revenue
P.O. Box 110400
Juneau, AK 99811-0400
POSITION STATEMENT: Commented on HB 197.
Jules Tileston, Director
Mining and Water Management
3601 C Street, Ste. 800
Anchorage, AK 99503-5935
POSITION STATEMENT: Commented on HB 197.
Mike Spence
Paul Fuhs
Southwest Alaska Pilots Association
10652 Parker Lane
Juneau, AK 99801
POSITION STATEMENT: Supported SB 130.
ACTION NARRATIVE
TAPE 95-45, SIDE A
Number 001
CHAIRMAN LEMAN called the Senate Resources Committee meeting to
order at 3:38 p.m. and said they would first take up the Mining
Overview and the Alaska Minerals Commission Report.
DR. EARL BEISTLINE, Alaska Minerals Commission, said they
appreciated being able to meet with the committee. He said the
Alaska Minerals Commission Report is required by state law and is
submitted to the governor and the legislature within 10 days of the
beginning of each year. That has been done, he said.
The report has several recommendations directed toward what would
stimulate the mining industry, removing any restraints along the
way.
The members of the Minerals Commission with him were Del Ackels,
Eric Neal MacKinnon, Joe Fisher and Karl Hanneman. Also present
was staff support through the Department of Commerce and Economic
Development, Dick Swainbank, Development Specialist.
HB 197 MINERAL EXPLORATION INCENTIVE CREDITS
NEAL MACKINNON, Minerals Commissioner, said he supported HB 197.
He said his company makes its living by exploring for properties
and then finding another company to come in with the big money it
takes to drill and carry it beyond the basic exploration part. Not
only do they deal with properties in Alaska, they compete in a
world market. They are finding that big companies who have a lot
of capital to expend in exploration are going to see more fertile
fields in South America. There is some perception that Alaska is
not "open for business" and not friendly to mining. HB 197 would
have a good psychological affect. This is the critical money,
because it is high risk. Another advantage the state would get in
return for the credit is data that is developed from the
exploration projects, MR. MACKINNON said.
KARL HANNEMAN testified on geophysical, geological, aerial mapping
recommendations. He said the 1991 Alaska Minerals Commission
Report recommended for the first time that the state undertake this
geological and geophysical mapping program, because Alaska was
recognized as being the least geologically mapped of the 50 states.
To market Alaska as an exciting frontier for mineral exploration,
a complete and accurate geologic and geophysical data base would
send a positive signal to the mining industry that Alaska favors
mineral development. Two objectives were outlined, then, he said.
The first short-term objective was to attract exploration dollars
that would result in private sector economic activity in Alaska -
often in rural Alaska. The second objective was to find mines.
He said the state has developed a competent staff and a critical
amount of work needs to be done each year in order to make an
efficient program.
SENATOR TAYLOR said he thought if we could increase funding to
attract tourists to Alaska by $1 million this year, we should be
able to increase the funding by which we determine what
mineralization we have here to attract anyone to look at.
SR 2 OPPOSE COAL AS HAZARDOUS/NOXIOUS SUBSTNCE
SENATOR LEMAN announced SR 2 to be up for consideration.
CHARLES BODDY, Alaska Coal Association and Usibelli Coal Mine, said
other coal producing states are doing the same thing in their state
legislatures to get a message clearly sent to the U.S. Congress and
the administration of the significance of the international
maritime organizations seeking to include coal as a hazardous and
noxious material. This issue is of importance to the board rooms
of every coal producer in the U.S.. That the proposed tariff would
be $4 per ton every time it's loaded or unloaded, which happens at
least three times, is a lot considering they are fighting over
pennies to stay in the marketplace.
Every person dealing with coal as a bulk commodity for shipment has
come out against it. The International Convention on Pollution
From Ships has never classified coal as a hazardous material. All
of the treaties and conventions that deal with coal being shipped
or transported as a bulk commodity have always excluded coal as a
dangerous, hazardous, or noxious material, MR. BODDY said.
There have been no spills of record that have ever seen any
problems caused in either the marine environment or along any
coastline ecosystems.
MR. BODDY said the Clinton administration is divided on the issue.
The Department of Justice and the U.S. Coast Guard are inclined to
favor coal as a noxious and hazardous substance, although in a
different classification within the treaty system with more
concerns revolving around the safety and health issues and
spontaneous combustion. The maritime administration for the U.S.
Department of Transportation, the Department of Commerce and the
Department of Energy all favor the exclusion.
SENATOR LEMAN said they would set SR 2 aside until a quorum was
present and announced the committee would continue with the mining
overview.
Number 408
JERRY BOOTH, Producers Council of Alaska, said they would have five
speakers today on a number of issues.
TOM CRAFFORD, Manager, Minerals and Coal, Cook Inlet Region
Incorporated (CIRI), said through its mineral subsidiary, North
Pacific Mining Corporation, CIRI is active in a variety of minerals
and mining exploration projects in the state. It holds the
Illinois Creek Gold/Silver project near Galena, the Johnson River
Gold/Copper/Zinc deposit near the base of Iliamna Volcano, the Red
Mountain Chrome property near Seldovia, and is a 10% owner in the
Beluga Coal Company.
Recently, CIRI has been the owner of some of the lands involved in
the Wishbone Hill Project. These lands have been under lease to
Idemitsu, Inc. and on April 3 a letter of intent was signed for
CIRI to acquire the Wishbone Hill coal project from Idemitsu. In
general most of the coal community is anticipating a $3 - $4 per
ton rise in the price of coal this year with possible increases to
come in the future. With this type of indicator, the project could
soon achieve economic viability. CIRI hopes to preserve the work
that has been done by Idemitsu by concluding the sales agreement on
the property by June. Had Idemitsu "walked" from this project, all
the major permits it has would expire and throw the project back to
square one.
He echoed Mr. Boddy's comments regarding SR 2 and the
classification of coal. It would severely impact the marketability
of Wishbone Hill coal on the international scene.
SENATOR LEMAN asked if CIRI needed to share the mineral resources
with the other corporations or was that only on native lands. MR.
CRAFFORD replied that 7(i) profit-sharing only applies to ANCSA
lands and for the small portion of the project that is CIRI-owned
land which is ANCSA land there would be profit sharing.
Number 518
PAUL VALENTI, Vice President, Operations, USMX, Inc., a Denver
based public company, explained that its two parcels, about 62,000
acres, are wholly owned by North Pacific Mining Company with USMX,
Inc. being the operator. He said Anaconda first discovered the
property and explored it for five years. They built quite a bit of
infrastructure and developed a 4500 ft. airstrip at the sight.
Based upon drilling and recent engineering studies, they have
developed a minable reserve of approximately four and a half
million tons of ore containing roughly 300,000 oz. of gold and 8
million oz. of silver.
The ore would be mined with conventional open-pit methods. It
would be mined six months a year, ore would be trucked from the pit
to a heap leach pad for processing. The ore would be stacked
behind an engineered dam on a double synthetic-lined compacted sub-
base. Gold and silver will be recovered from the ore by using
dilute cyanide solution which would be pumped to a process plant to
recover. The cyanide solution is recirculated and stays within a
contained system. All of the mine and process facilities will
emphasize protection of ground and surface water quality. They
will employ 100 people and during the mine life will employ a small
work force of 40 - 50 people. Reclamation will start as soon as
the mining. The company received an award in Nevada in 1992 for
reclamation efforts at its Green Springs Mine. This week they have
received an award from the state of Utah for reclamation efforts at
the Gold Strike Mine.
Project permiting is under way and they hope to get them in early
1996, producing their first gold and silver in late 1996.
SENATOR LEMAN said this was encouraging to him and probably rural
Alaska in terms of job opportunities. He asked if they were
getting offers from people who were interested in working.
MR. VALENTI replied that last week a group representing USMX toured
six villages and there was a lot of interest in the villages about
the employment opportunities for which his company would provide a
considerable amount of training.
DOUG HORSWILL, Vice President, Environment and Public Affairs,
Cominco Alaska, Unlimited, said he was here on behalf of Sharla
McKay, their environmental supervisor at the Red Dog Mine. The
efforts at the operation over the last year and a half are very
intensive to bring the operation up to planned production levels.
It is now capable of producing 2,000 tons per day concentrate which
is somewhat over the design capacity.
TAPE 95-45, SIDE B
Number 563
Right now the zinc market is at 45 - 50 cents and they go between
making some money and losing money. They need to bring their
break-even costs down even further to make sure they and their
shareholders (and Nana shareholders) gain the benefits they all
expected originally from the project. At the present time they
have a work force of about 350, 51% are Nana shareholders. They
have a plan in place to try to increase that number over time.
They have a very positive relationship with state agencies.
Particularly important to them is the relationship with the
northern region habitat branch of ADF&G which has been extremely
helpful in solving problems in helping them define areas of joint
interest.
They are in the last stages of a five-year process of permit
renewal of a water permit. There are some EPA issues they still
have to deal with in the next few weeks. They need to be able to
discharge water, ultimately at the rate of intake for rainfall in
the area. Over the time since start-up, they have spent $40
million on environmental enhancements.
Number 563
SENATOR TAYLOR asked him if the water permit was still in review if
they started five years ago. MR. HORSWILL explained that the
initial permit expired in 1991 and the effort to renew it has been
under way since then. He said they would like to have the permit
within two weeks, although he didn't think it was possible.
GEORGE COLE, Vice President, Exploration, Cominco American, said
they have had an exploration presence in Alaska since the late
1970's. In 1995 they will put approximately one third of their
U.S. exploration dollars into Alaska on 10 projects - three gold,
six zinc, and one copper project. Approximately 20 people,
including contractors, will be employed by the exploration group in
Alaska during 1995. None of the exploration programs are in the
advanced stage of exploration, but they hope by the end of next
year or this time next year they will be in a more advanced state.
BILL JEFFRESS, Chief, Environmental Services, Fairbanks Gold
Mining, said they are wholly-owned by AMEX Gold and are developing
the Fort Knox project. He said they have all of their permits
after a three-year process. Currently, they have about 150
employees on-site. By the middle of the summer that number will
increase to 500. They will be in production by 1996 and will have
a permanent work force of 250 people. He said this is a long-term
operation with a mine life of 12 - 16 years with a potential for
additional reserves that could extend the mine life. The project,
itself, is entirely on state and private land. They will be
processing 36,000 tons of ore a day. This will be the largest gold
milling project in North America. They will be mining an equal
amount of waste material.
Number 496
STEVEN BORREL, Executive Director, Alaska Miners Association, said
he thought this was probably the most exciting time for the mineral
industry in the state since the early part of the century.
Twenty people are being brought here from the mine in McGrath to
attend the training program at Greens Creek and Echo Bay. So the
Juneau area can benefit other areas of the state. Last year a
major company was exploring in the middle of winter and MR. BORREL
was optimistic that others would realize they didn't have to shut
down exploration in the middle of winter as they have done in the
past.
He pointed out that another drilling program at Nome started,
partially based on some data from the airborne-geophysical program.
Alaska still has the perception for many companies, though, of
being a bad place to do business. Several things happening in the
legislature are a positive signal to change that, like the
incidental discharges bill. He said that the airborne-geophysical
survey has resulted in the staking of over 81 square miles of
claims in the Fairbanks district. More money has already been
spent in the Fairbanks district by private industry than the cost
of the entire program and the serious exploration work hasn't even
started, yet.
He was grateful that the Mental Health Trust dispute was settled,
because that was the reason the Wishbone Coal project stopped for
so long.
HB 197 MINERAL EXPLORATION INCENTIVE CREDITS
SENATOR LEMAN announced HB 197 to be up for consideration.
JOHN WALSH, Legislative Aide to Representative Richard Foster, said
HB 197 helps make Alaska as attractive as possible for investment
dollars to come in and help us develop our resource potential.
Native corporations are going to need to partner-in with
professional mining companies and this is a positive way to keep
them going.
SENATOR LEMAN asked if HB 197 was fairly consistent with the
credits. MR. WALSH said that was correct and added that these are
the same credits that were in the bill last year, although there is
another provision for corporate income tax in the current bill.
DEBRA VOGT, Deputy Commissioner, Department of Revenue, said they
do have some concerns with HB 197, primarily in the income tax
area. She explained that regarding mining, there are two taxes -
corporate income tax and the mining license tax. Both taxes are
net income taxes, neither tax will tax an activity until it shows
a profit. Additionally, the natural resource extraction
calculation accounts for exploration costs by bringing those costs
forward until the beginning of production and allowing them to be
amortized and depleted against income. So every expense that is
addressed by this legislation is already deductible under both the
mining license tax and the corporate income tax. She agreed with
Mr. Walsh that the mining license tax has a three and one-half year
tax exemption. The Department of Revenue believes the tax
structure for the mining industry in Alaska is pretty fair.
Number 260
Any perception that Alaska is not welcoming to the mining industry
is just that - a perception. Mining taxes and corporate income tax
paid by mining companies in this past year totaled about $300,000.
The state is not collecting a lot of money from the mining
industry, she said.
One of the largest problems the department has with the legislation
is with the way it works vis-a-vis the income tax. We have an
income tax system that a lot of states use that does not tax based
on what you might consider to be your own business sense of profit
and loss in this state. When a corporation does business in more
than one state, a method has to be found for determining how much
of that income was earned in Alaska and how much was earned
someplace else. The mining license tax does look only at Alaska
activities. The corporate income tax taxes a part of income based
on a formula looking at your nationwide activities. It's called
the water's edge reporting method which looks at the percentage of
sales in Alaska and compares it to the sales everywhere else in the
states that you do business. That fraction is then added to the
percentage of your property that's in Alaska vs. the property in
other states and your payroll in Alaska vs. your payroll
everywhere. Those three fractions are added and divided by three;
that answer is averaged to come up with one fraction that is
applied against your overall United States income to determine the
amount of income we say you earned in Alaska for tax purposes.
This is not a method used by taxpayers to look at themselves; it is
used by taxing authorities and almost every state uses it, because
it's a lot simpler than trying to untangle intercorporate affairs
of multi-state taxpayers and using separate accounting (which is
used with only oil companies). This technique bears no
relationship to the concepts presented in HB 197.
The bill twice asks the department to relate the income generated
by the mining activity to the site of the mine and the idea is that
incentives are accumulated for a particular site. Formula
apportionment isn't going to tell you how much money the site made.
The Knowles Administration is opposed to the legislation, primarily
because of the inclusion of AS 43.20 at all and basically the
double deduction of being able to deduct the exploration expenses
and then later getting a credit for the same expense. The taxpayer
will make money from the state for each dollar.
SENATOR LEMAN asked her if she had any suggestions that might help
accomplish what the prime sponsor wants accomplished. MS. VOGT
said she hadn't discussed specific amendments, but certainly taking
AS 43.20 out of the legislation would be a great improvement. She
said it would also be simple to draft an amendment that would not
permit a deduction for the same expenses that were used for a
credit. The difficulty is that the deduction part applies to the
taxes, not to the royalty and rent parts. The legislation lumps
together all the taxes and allows you to take half of the amount
against any of liabilities.
Number 160
SENATOR LEMAN asked if any mining companies in Alaska were paying
corporate income taxes. MS. VOGT said she thought so. She added
that the mining definition includes sand and gravel.
SENATOR LEMAN asked how Alaska compared with other states for the
mining business. MS. VOGT said she didn't know that and offered to
bring that information back to him.
SENATOR TAYLOR said there are other factors at play, not just tax
issues, to make a reputation. He said incentives were given years
and years ago.
MR. BORREL strongly supported HB 197 as it reads. He thought it
would encourage international mining companies. He said they have
been working hard to change the perception that Alaska is a
difficult place to do business and he thought this would go a long
way toward that. He noted that only exploration expenses were
addressed in this bill and that there are many other costs
involved. Also, he noted that these credits could not be used
unless the project goes into production. Part of the reason the
State of Alaska has such little income from the mining industry is
because there's effectively no mining in the state. The credits
are applied against new revenue streams and don't touch existing
production.
Another aspect is that by far most projects will never become an
operating mine, and therefore, most of those expenditures that have
been certified will never actually appear as a credit against a
project. Another measure of how few projects would have already
benefited from this is that there are only three mines in the state
that are year-round operating mines that could have qualified for
this had it been in place at the time of exploration.
MR. BORREL said he thought it was correct that the oil exploration
incentives bill that was passed last year has exactly the same
language regarding state income tax as this bill has.
TAPE 95-46, SIDE A
Number 001
MS. VOGT responded that the tax in Title 41 is a tax credit for oil
exploration activities and is applicable against AS 43.20, the
income tax, but it is not related to the site. It is simply a tax
credit up to a cap which is a very specific dollar amount - a total
of $5 million per project and a total of $30 million per company
taken anywhere.
Jules Tileston, Director, Mining and Water Management, said there
are two distinct elements of the bill, one dealing with the income
tax and the other dealing with rents and royalties. His comments
deal only with the rents and royalties. He said the bill has
addressed most of his areas of concern on its way through the
legislature. The coal industry now pays a 5% adjusted gross value
royalty and a $3 per acre rental. Cost for transportation from the
mine mouth to the point of sale and for benefication costs are
already deductible from the contract sales prices. A mechanism for
royalty reduction is available if the coal operation is
unprofitable. For that reason, they believe coal should not be
included.
MR. TILESTON said clarification was needed on page 3, line 9 which
addresses a series of things you must do. One of the items is a
definite advantage to industry and the public when the credit is
actually applied for and implemented that the data used for credit
be made available. He recommended after the word, "consultant" on
line 9 add "and exploration activity data that will in the future
be made available under Section 2(a)" so there is a clear linkage
between the provision of the data and the application of the
credit. There were additions in the bill that have already been
made that provide for identifying the data on an annual basis so
there is no confusion of what is available.
Their second concern is that the Division operates largely on
program receipts from rentals. They are concerned that as the
present levels of funding go down, particularly from oil and gas,
that deductions may affect their ability to provide continued
service at the level they are providing now to the industry.
Therefore, they propose that the rental offset not apply for those
elements only.
Their last concern was with the definition of a site. Most mining
companies hold numerous 40-acre mining claims. Some mining leases
are also 40-acres in size, but may range up to several thousand
acres in size. The rentals change according to whether the claim
has been located for five or ten years. The bill should make it
clear that it's the area of operation which is only defined at the
permit time and that only those exploration credits which have
previously been approved that go to that site are the ones that can
be used.
MR. TILESTON said there was definitely a glimmer of hope from DNR's
perspective on this legislation. SENATOR LEMAN asked MS. VOGT if
there might be some hope from the Department of Revenue if they put
in a cap and deal with the income taxes. MS. VOGT answered there
would be from DOR, but she couldn't say about Governor Knowles.
SENATOR LEMAN said they would set HB 197 aside for now.
SENATOR LEMAN announced an at ease from 5:25 p.m. - 5:30 p.m.
SB 130 MARINE PILOTS
SENATOR LEMAN announced SB 130 to be up for consideration, noting
there was a subcommittee report.
SENATOR PEARCE moved to adopt the subcommittee's CS to SB 130.
There were no objections and it was so ordered.
Number 245
SENATOR PEARCE moved to adopt amendment #1 which reinstates the
maximum tariff procedure. SENATORS TAYLOR and LINCOLN objected.
SENATORS TAYLOR, PEARCE, LINCOLN and HOFFMAN voted no; SENATOR
LEMAN voted yes; and the amendment failed.
Number 277
SENATOR PEARCE offered amendment #3. SENATOR LINCOLN objected.
SENATOR PEARCE said that there was a tremendous amount of testimony
on cross-regionalization in 1991 when they first worked on this
issue. Present law says it leaves that question up to the Board,
and the Board has that authority under the language that's being
deleted in this amendment. She did not support the amendment, but
did support the language in the present bill that does change and
give the Board a different kind of latitude that will allow
continued safety aspects.
SENATOR LEMAN said he disagreed, because the Board would still have
the ability to establish the procedures by which somebody would get
qualified.
SENATORS PEARCE, TAYLOR, LINCOLN, and HOFFMAN voted no; SENATOR
LEMAN voted yes; and the amendment failed to pass.
MIKE SPENCE and PAUL FUHS, Southwest Alaska Pilots Association,
indicated their support of SB 130.
SENATOR TAYLOR moved to pass CSSB 130(RES) from committee with
individual recommendations. There were no objections and it was so
ordered.
Number 333
SENATOR TAYLOR moved to adopt the CSSR 2(RES). There were no
objections and it was so ordered.
SENATOR TAYLOR moved to pass CSSR 2 (RES) from committee with
individual recommendations. There were no objections and it was so
ordered.
SENATOR LEMAN adjourned the meeting at 5:50 p.m.
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