Legislature(2003 - 2004)
02/19/2003 01:10 PM Senate RES
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* first hearing in first committee of referral
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ALASKA STATE LEGISLATURE
JOINT MEETING
SENATE RESOURCES STANDING COMMITTEE
HOUSE RESOURCES STANDING COMMITTEE
February 19, 2003
1:10 p.m.
MEMBERS PRESENT
SENATE RESOURCES
Senator Scott Ogan, Chair
Senator Ralph Seekins
Senator Ben Stevens
Senator Georgianna Lincoln
HOUSE RESOURCES
Representative Mike Chenault, Co-Chair
Representative Hugh Fate, Co-Chair
Representative Bob Lynn
Representative Kelly Wolf
Representative David Guttenberg
Representative Beth Kerttula
MEMBERS ABSENT
SENATE RESOURCES
Senator Thomas Wagoner, Vice Chair
Senator Fred Dyson
Senator Kim Elton
HOUSE RESOURCES
Representative Beverly Masek, Vice Chair
Representative Carl Gatto
Representative Cheryll Heinze
COMMITTEE CALENDAR
MINING INDUSTRY OVERVIEW
TAPES - 03-5, 03-6, SIDE(S) A & B [SENATE RES TAPE]
SUMMARY OF INFORMATION
CO-CHAIR SCOTT OGAN convened the joint meeting of the Senate
Resources Standing Committee and the House Resources Standing
Committee at 1:10 p.m. Present at the call to order were
Senators Lincoln, Stevens and Co-Chair Ogan, and Representatives
Guttenberg, Wolf, Lynn, Morgan and Co-Chairs Chenault and Fate.
Senators Olson and Hoffman joined the committee while the
meeting was in progress.
MR. STEVE BORELL, Executive Director of the Alaska Miners
Association, applauded the Governor's focus on mineral
development and the construction of new roads. He stated that
streamlining the oil and gas permit process will also benefit
the mining industry.
MR. BORELL reviewed changes made on the national level during
the last year. The U.S. Department of Interior will institute a
new procedure regarding recordable disclaimers of interest. This
change will result in a significant cost reduction to the state
by avoiding adjudication in federal court.
MR. BORELL said the big issue for the mining industry at this
time is the price of metals. The price of zinc is very low; the
price of gold is volatile. Small operators are struggling but
junior exploration companies are showing increased interest in
Alaska. The Fraser Institute Report has shown that Alaska falls
in the middle of the pack regarding the industry's perception of
Alaska's friendliness toward mining.
MS. CHARLOTTE MacCAY, Senior Administrator of Environmental
Affairs for Tech-Cominco, gave a PowerPoint presentation on the
operations of the Red Dog Mine. She pointed out that zinc is at
its lowest price since the Great Depression and, although the
Red Dog Mine is losing money, it will weather the low price. She
stressed the economic benefits of the mine to the NANA Region
and NANA shareholders, and its state-of-the-art, high
environmental standards. The Red Dog Mine is leading the
industry in "fugitive dust control" and fish are populating
local streams for the first time as the water quality is better
now than it was prior to the development of the mine. She
reviewed the mine's efforts to convert power generation at the
mine from diesel fuel to natural gas using a privately owned
source of natural gas located on NANA land. She noted that the
existing gas regulations were not written for this type of
project and may need to be expanded.
CO-CHAIR FATE announced that Senator Olson was present and
called Rich Heig to present to the committee.
MR. RICH HEIG, general manager of the Greens Creek Mine, gave a
PowerPoint presentation on the status of operations at the
Greens Creek Mine on Admiralty Island in Southeast Alaska [a
copy of the PowerPoint presentation and a handout he provided
are in the Senate Resources Committee file]. Mr. Heig described
the location, history and operations of the Greens Creek Mine.
Since 1995, the mine has increased production of three types of
concentrates from 1350 tons per day to 2000 tons per day while
reducing costs every year to remain competitive. Greens Creek
prefers to hire locally; about 85 percent of its 260 employees
are Alaska residents. Greens Creek is the largest private sector
employer in the Juneau area. The mine footprint is very small -
327 acres, and it spends $2 million annually on its
environmental budget. The future life of the Greens Creek Mine
is 10 years. It has an aggressive exploration plan this year.
MR. HEIG described the conclusions of a McDowell Group survey of
200 Juneau households: 78 percent felt mining is very important
to the Juneau economy; 77 percent felt mining has a positive
impact. In addition, 61 percent felt Greens Creek does a good
job environmentally, 7 percent felt the opposite, and 32 percent
did not know. He then discussed the economic benefits of the
mine to Juneau.
MR. RICK DYE, Fairbanks Gold Mining, gave a PowerPoint
presentation to committee members [a copy is on file with the
Senate Resources Committee]. He described the ownership pattern
of Fort Knox, which is currently operated by Kinross Gold. Its
current production is 2 million ounces per year, primarily from
locations in North America. Most of its exploration is focused
around its core assets.
The operating issues at the Fort Knox Mine include metal price,
grade, and reserves. Fort Knox has a low-grade deposit, which is
one reason a high-grade deposit like True North is so important
to Kinross Gold's operation. The Fort Knox mine life projection
is to 2008. Reclamation will begin at True North in 2004. In
2008, milling will begin on a stockpile, with no additional
expansion of reserves. Kinross Gold plans to do major
exploration in the Fort Knox area. With no more reserves,
Kinross Gold will have a window of five years in which to add to
current reserves. The Fort Knox payroll is about $21 million per
year, plus 35 percent in benefits. Fort Knox spends about $52
million per year locally, of which about $15 million is on
power. Fort Knox's power factor translates into a $3.7 million
savings to local Golden Valley Electric Association members. The
Fort Knox mine employs about 1.5 percent of the borough's
population and pays about 9 percent of borough taxes.
CO-CHAIR FATE acknowledged the presence of Representative
Kerttula.
MR. DYE said Alaska hire is about 90 percent but that percentage
has diminished a little over the past few years while Fort Knox
went through a major expansion. The mine has had difficulty
finding enough skilled diesel mechanics and electrical mechanics
in Alaska. It is working closely with the vocational schools in
Fairbanks and Seward to recruit. He noted the mine encourages
out-of-state employees to become Alaska residents.
TAPE 03-5, SIDE B
MR. KEITH WALTER, general manager of Usibelli Coal Mine, gave a
PowerPoint presentation [a copy is in the Senate Resources
Committee file]. Mr. Walter reviewed the history of the mine
since 1917, and told members Usibelli started doing reclamation
work in 1971, about 7 years before reclamation was required by
law. After producing 1.5 million tons for 17 years, Usibelli is
now producing 900,000 tons due to a loss of sales to South
Korea. Usibelli has five permitted mines; two are on the
decline. The three active permitted areas contain about 60
million tons of coal. It has four different customers in six
different sites: Fort Wainwright, Eielsen Air Force Base, Clear
Air Force Base, Aurora Energy, the University of Alaska, and
Golden Valley at Healy. Usibelli is now moving into a new 25-
acre site that contains 40 million tons of reserves. He
discussed the Suntrana formation and the Jumbo Dome leases.
Usibelli wants to educate the public on the benefits of using
coal to generate electricity. Coal generates 56 percent of all
electricity in the United States.
SENATOR LINCOLN asked what the state can do to help Usibelli.
MR. WALTER said an expedited permitting process for the Jumbo
Dome and Emmett Creek areas would help. If the permitting takes
10 or 15 years, many families will leave the Healy area.
CO-CHAIR FATE asked about the future of the clean coal project.
MR. WALTER said at this time the Alaska Industrial Development &
Export Authority (AIDEA) and the Golden Valley Electric
Association are trying to figure out how to finance the project.
He explained the coal is sub-bituminous, very low sulfur, and
produces about 7800 BTU per pound.
SENATOR LINCOLN asked if Usibelli has explored how coal might be
used at the missile defense site.
MR. WALTER said that Usibelli can sell more coal to the Golden
Valley Electric Association.
CO-CHAIR FATE then announced the next presentation would be
about the Pogo project.
KARL HANNEMAN, Teck-Pogo, Inc., told members he has the exciting
project of developing what will be the next major mine in
Alaska, the Pogo Project. He gave a PowerPoint presentation [a
copy is located in the Senate Resources Committee file]. Pogo
has a 5 million ounce resource located on state land. Its key
issues for development are to ensure the integrity of the
Goodpaster River and management and mitigation of the all-season
access road. He reviewed the history of the mine's ownership and
development. The underground mine will require a capital cost of
$250 million; Teck-Cominco has invested $78 million so far. The
project will require 500 employees to construct and 300 to
operate. Teck-Cominco is engaged in the Environmental Impact
Study and permit process now. Teck-Cominco has begun a regional
workforce development and training program in Delta Junction.
Access is a challenge; Teck-Cominco proposes to use the
Goodpaster winter trail to bring supplies and equipment to the
site. To make the project a reality, the road, wastewater
discharge, and power line need to be permitted. It will also
need a stable tax policy and a schedule to make this happen and
a positive final feasibility study to confirm the economics
based on the permit conditions imposed.
MR. HANNEMAN pointed out that Teck-Cominco appreciates the
support it has heard for construction of new roads in Alaska. It
is proposing a private-industrial right-of-way in which the
company will pay for all construction, maintenance and closure
of the road but the road will not be open to the public in order
to reduce safety, liability, environmental and subsistence
issues. Teck-Cominco would propose limited commercial use of the
road. It has proposed posting a bond for the road and power line
reclamation at the end of the project. Teck-Cominco believes
this road management solution will provide major benefits to the
state.
TAPE 03-6, SIDE A
SENATOR LINCOLN said no one is opposed to streamlining the
permitting process, especially if it benefits Alaska businesses.
She asked Mr. Hanneman if Alaska made every change possible to
streamline the process, how much of the problem would lie with
the federal permitting process, using the Pogo project as an
example.
MR. HANNEMAN said the EIS process is proceeding with a
cooperative agreement between the EPA, Corps of Engineers, DNR,
and the Coast Guard (because of the bridge). Under that
agreement, it is the federal NEPA process that is driving the
timeline. The state has been quite professional and supportive
in working with the federal agencies to try to move things in a
timely manner. However, the scientific standard of review
required under NEPA is substantial.
REPRESENTATIVE KERTTULA asked Mr. Hanneman to suggest three
changes to the process that would be helpful.
MR. HANNEMAN said clear coordination of state review is a very
"doable" task. A procedure for issue resolution within the NEPA
review itself, where various agencies comment on the drafts,
would be helpful. He suggested the state might be able to work
with the federal agencies to set up a schedule of review. The
bottom line is that the courts require the federal agencies to
take a hard look at issues no matter when those issues are
raised during the process.
2:30 p.m.
MR. RICK RICHENS gave a PowerPoint presentation on the
Kensington mine north of Juneau. Coeur D'Alene Mines is the
world's largest silver producer; the Kensington mine is its only
major gold asset. He reviewed the history of mining in the area
of the Kensington mine. The mine is located in an area typical
of Southeast with steep topography and high precipitation. He
has found that many of the federal permitting programs do not
take into account the unique environmental conditions of
Southeast Alaska, such as an annual rainfall of 100 inches. The
Kensington mine is located adjacent to Jualin land, which
consists of 5,000 acres of patented and unpatented mining
claims. It is also adjacent to land owned by Goldbelt, which has
started to figure into the Kensington project plan. The project
was permitted in 1998, but was determined to be uneconomical. It
entered into an optimization program with the goal of trying to
significantly reduce capital and operating costs. Coeur D'Alene
decided to go with a proposal that would link the Jualin and
Kensington properties via a 6500-foot tunnel. The project was
downsized and made more efficient. The Kensington mine will
employ 350 people during construction and 225 during operations.
The size of the overall footprint of the project has been
reduced to 150 acres and wetlands impact was reduced
significantly. Coeur D'Alene Mines entered into agreements with
Goldbelt, Klukwan, and Kake Tribal to provide Native hire
preference and training. It has filed a new plan of operations
with the U.S. Forest Service, which triggered an EIS. It has
filed all major federal permit applications and is working on
state permits.
REPRESENTATIVE KERTTULA asked the status of the issues
surrounding the lake.
MR. RICHENS said that Coeur D'Alene Mines has filed a water
discharge permit application with the EPA and is in an iterative
process whereby it provides its scientific findings through a
series of workshops and EPA comes back with questions. He
understands that if Coeur D'Alene Mines can demonstrate that
this project is better environmentally than permitted projects,
the EPA will issue a water discharge permit. Regarding a prior
question about three wishes, he said he would like to see more
predictability in the permitting process. Coeur D'Alene is now
trying to get a memorandum of agreement between the state and
federal agencies that would definitively spell out review time
frames.
REPRESENTATIVE KERTTULA asked if the issue is not necessarily
the outcome as much as predictability regarding the timeframe.
MR. RICHENS said that is correct. He said they are not asking
that the outcome be pre-judged, but that the process has some
sideboards built around it. He noted that regarding the issue of
state primacy of NPDES, he has seen that work very well in other
states.
MR. RICK VAN NIEUWENHUYSE, President of NovaGold, gave a
PowerPoint presentation [a copy is located in the Senate
Resources Committee file]. Its main activities in Alaska are in
Donlin Creek, around Nome at Rock Creek and the Nome Gold
project. The Donlin Creek project is a partnership between
NovaGold Placer Dome and Chulista and the TKC. Chulista owns the
subsurface rights, TKC owns the surface rights. So far, $48
million has been spent on the project, primarily on exploration.
It has switched tracks and is now focusing on development. Two
issues need to be resolved. The first is access. The mine is
located about 18 miles from the Kuskokwim River so an access
road will need to be built. Second, two barge trips per day
would be required to deliver the amount of fuel needed to
operate the mine. That plan is feasible but has risks. A
temporary lay down area at the barge site could be constructed
and an access road could run from Crooked Creek to the site of
Donlin Creek. A pre-feasibility study should be completed by
August of this year followed by: feasibility and environmental
studies for the next two years; financing and arranging final
permits for one year; and a construction period of two years.
The Donlin Creek sulfide ores will require an autoclave unit for
extraction. Power consumption will be high, which is the big
issue for the project. The mine will provide 500 to 600
construction jobs and 450 to 550 jobs during operations.
NovaGold has placed a lot of emphasis on shareholder hire,
primarily from the upper villages on the Kuskokwim River.
MR. ROB PEASE, General Manager of Placer Dome, told members that
Placer Dome has been involved in the Donlin Creek project since
1995. Donlin Creek is a very, very large project. It is the
single largest capital project that Placer Dome has ever
endeavored. This project is in a remote location and cannot be
developed as a stand alone mine; it will require a joint venture
of companies and all of the stakeholders in Alaska to make it
work.
MR. CURT FREEMAN, President of Avalon Development Corporation,
gave a PowerPoint presentation entitled "Perception is Reality,
A View from Outside Alaska." [A copy is located in the Senate
Resources Committee file.] He explained Alaska's positive
aspects: its experienced labor force, abundant stable land,
acceptable tax regime, pro-development government, and that it
is highly under prospected. He noted that in many other parts of
the world, the mining industry is encountering problems with
aboriginal rights, an issue that was resolved in Alaska with the
Alaska Native Claims Settlement Act. He showed graphs of the
discovery rate of Alaska's gold resources, the drill footage,
the cumulative gold resources, cost, and gold deposits ranked by
size. He pointed out the downside of Alaska is that it does not
have a mid-tier mining company in the state, it is highly under
prospected due to a lack of infrastructure, the labor force is
more expensive, the perception that Alaska is one giant
wilderness area, and the fact that the pro-development
government could change quickly. He expressed concern that there
is no recourse to frivolous lawsuits that are filed to slow an
operation down.
TAPE 03-6, SIDE B
MR. FREEMAN cited the Fraser survey [www.fraserinstitute.ca], a
survey by a Canadian think tank of companies to gauge the
perceived investment attractiveness of given jurisdictions
around the world. Alaska's rank dropped from seventh to twelfth,
however it scored behind Russia, China, South Africa, Bolivia,
Brazil and Peru. It has scored better in the past: last year it
ranked seventh. He discussed the survey's conclusions and said
that the perception is that: environmental and land use policies
are major deterrents to mineral investment in Alaska; Alaska has
built virtually no new roads or power facilities; and Alaska
needs a rural hub for development that can grow. Others are not
convinced of the stable nature of Alaska's land. In addition,
the state and federal mine permitting processes need to be
coordinated to a greater extent.
MR. FREEMAN said Alaska's biggest mistake is its underestimation
of the competitions' ability to draw capital. When people feel
it is safer to invest money in Russia, China or Indonesia than
it is in Alaska, a lot of work needs to be done.
He suggested streamlining the permit process, eliminating the
zero liability legal challenge, designing and building road and
power facilities in centralized hubs, expanding airborne
geophysical surveys, and regaining regulatory control of
Alaska's waters and coastlines.
ANNOUNCEMENTS
There were no announcements.
COMMITTEE ACTION
The committees took no action.
ADJOURNMENT
CO-CHAIR FATE adjourned the meeting at 3:20 p.m.
NOTE: The meeting was recorded and handwritten log notes were
taken. A copy of the tape(s) and log notes may be obtained by
contacting the Senate Records Office at State Capitol, Room 3,
Juneau, Alaska 99801 (mailing address), (907) 465-2870, and
after adjournment of the second session of the 23rd Alaska State
Legislature this information may be obtained by contacting the
Legislative Reference Library at (907) 465-3808.
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