Legislature(2013 - 2014)BARNES 124
04/14/2014 03:15 PM House LABOR & COMMERCE
| Audio | Topic |
|---|---|
| Start | |
| SB99 | |
| SB140 | |
| SB194 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | SB 99 | TELECONFERENCED | |
| + | SB 140 | TELECONFERENCED | |
| + | SB 194 | TELECONFERENCED | |
| + | TELECONFERENCED |
SB 99-AIDEA: DEVELOPMENT LOANS
3:23:59 PM
CHAIR OLSON announced that the first order of business would be
CS FOR SENATE BILL NO. 99(L&C), "An Act relating to the Alaska
Industrial Development and Export Authority revolving fund;
limiting the use of the Alaska Industrial Development and Export
Authority sustainable energy transmission and supply development
fund for certain loans and loan guarantees and allowing the
development fund to be used as security for a bond guarantee;
amending the definition of 'qualified energy development'; and
authorizing the Alaska Industrial Development and Export
Authority to issue bonds to finance the infrastructure and
construction costs of the Bokan-Dotson Ridge rare earth element
project and the Niblack project."
3:24:07 PM
JESSE LOGAN, Staff, Representative Lesil McGuire, Alaska State
Legislature, stated that SB 99 corrects a few ambiguities in the
existing statutes for the sustainable energy transmission and
supply development program (SETS) within the Alaska Industrial
Development & Export Authority (AIDEA). Primarily, the bill
would clarify a few technical aspects of the SETS program which
was created by the 27th Legislature. He explained that some
ambiguity arises with the one-third capital cost limitation as
it relates to loans, loan guarantees, and bond guarantees. He
referred to page 2, lines 18-36 [Section 2], which relates to
whether the loan guarantee limitation works in conjunction as a
one-third limitation on the loans or was independent of that
limitation. Additionally, the statutes were vague pertaining to
AIDEA's authority to use the fund as security for a bond
guarantee. He said AIDEA has received requests from project
components and banks to utilize the fund in which AIDEA needed
the authority to issue a bond guarantee for more than one-third
of the capital project cost. This bill would clarify those
ambiguities, he explained. Additionally, referring to the
bottom of the bill, AIDEA is granted bonding authority on two
projects, the rare earth elements at the Bokan Dotson Ridge site
for $145 million and the Niblack mine site for $125 million.
CHAIR OLSON commented that the fiscal note is zero.
3:25:47 PM
REPRESENTATIVE JOSEPHSON referred to [page 3], Section 5-6, of
SB 99. He asked for a description of the location of the rare
earth mines. He said that the sites are both located on the
southeastern corner of Prince of Wales Island, including a
description of tailings moved to Gravina Island.
MR. LOGAN deferred to representatives of the projects.
3:26:41 PM
JAMES SULLIVAN, Director, Southeast Alaska Conservation Council
(SEACC), expressed concern about the two projects being added,
although SEACC does not have any issue with the original bill.
Overall, SB 99 is a good bill; however, the way the proposed
committee substitute [(CS) for SB 99 (L&C)] is worded to include
the two mining projects and to allow AIDEA to either own or
finance these creates a huge conflict of interest for the state.
He explained that the state will be regulating the projects -
the watchdog of the group - but will also be the owner. This
conflict of interest has not been addressed by any of the
committees thus far, he said. These projects also put the state
"on the hook" for a combined $300 million, yet the bill does not
have a referral to the House or Senate Finance Committees. He
said SEACC finds this troubling. He cautioned that this does
not suggest that AIDEA doesn't perform its "due diligence" since
AIDEA has created a wonderful track record over the years. He
reported the financing range could be anywhere from zero to $270
million. He said this as an unfortunate step since it places
the state in ownership of an operation that should be regulated.
3:29:19 PM
REPRESENTATIVE JOSEPHSON related his understanding that AIDEA
loans money.
MR. SULLIVAN agreed.
REPRESENTATIVE JOSEPHSON asked for further clarification on the
concern. He asked whether his concern stemmed from the state
loaning money to itself.
MR. SULLIVAN said that the conflict arises because the state
could potentially own a project it must regulate. He noted that
many mining operations in the state have done well and have been
profitable; however, other examples in mining have not gone so
well and the state has been "left with the bag" for the cleanup.
He pointed out the Tulsequah Chief Mine near the Taku River [in
British Columbia]. He reported that this mine is draining acid
right now, has been for years, and will continue to do so for
years to come. In response to a question, he acknowledged that
the Tulsequah Chief mine was not an AIDEA project; however, he
noted it is a mining project. He offered his belief that it
puts the state in a difficult position. He would like the state
to avoid possible problems in the years to come, which is why he
is speaking out against it.
3:30:59 PM
REPRESENTATIVE JOSEPHSON asked to set aside the issue of the
conflict. He said that his cursory review of Bokan Dotson Ridge
rare earth element project and the Niblack mine project is that
these mines are underground mines, and one has a small footprint
and, in the other, tailings would be moved to Gravina Island for
processing. He asked whether SEACC has any concerns about the
health of Prince of Wales Island from this or if the project is
relatively benign.
MR. SULLIVAN responded that he does not have a "crystal ball"
and he does not know what situations will arise. He said that
SEACC believes any type of mining in Alaska should undergo a
rigorous permitting process, which should be constantly reviewed
to ensure that it is operating in the way it is supposed to
operate. In the event that problems do arise and the state has
invested millions in the project, but another agency within the
state has the regulatory responsibility to fine them or stop
them, it creates troubling conflicts. He acknowledged he's
raising hypothetical circumstances, but he asked how the
Department of Natural Resources or the Department of
Environmental Conservation [would regulate the activity]. He
further acknowledged that he was unsure the mines will be
financed so, again, this is hypothetical and could be years away
from any decision. Still, it would be very troubling if
problems did arise, noting that the Bokan-Dotson mine has
uranium, and many issues potentially exist and should be
constantly monitored. This isn't about being pro-mining or
anti-mining but about taking care of the land appropriately that
the state is entrusted to care for, he said.
3:33:28 PM
REPRESENTATIVE SADDLER asked whether Tulsequah Chief Mine near
the Taku River is in the U.S.
MR. SULLIVAN answered no.
REPRESENTATIVE SADDLER noted his comment that Alaska mining
should go through a rigorous permitting process. He asked
whether the Pebble Project should go through a rigorous state
permitting process.
MR. SULLIVAN answered yes, if it ever gets that far.
3:34:16 PM
REPRESENTATIVE JOSEPHSON asked for a sense of what the project
would look like. He said he has been to Ketchikan and has been
all over Revillagigedo Island, but he does not have a sense of
what this project will look like when it's done.
KEN COLLISON, Chief Executive Officer, Ucore Rare Metals, Inc.,
explained that the Bokan-Dotson Ridge mine will be an
underground mine with a small footprint and all the tailings
will be put back underground. He reiterated that the tailings
will not be on the surface at closure. He explained that the
rare earth mine ore is acid consuming and the waste is acid
consuming so acid-rock drainage issues don't exist. He said
that basically what a person would see at the site would be a
decline that goes into the ground with a 15-foot square opening,
and several openings will also rise vertically for ventilation.
Additionally, some buildings will be built, including a
relatively small mill, an office building, and a camp. He
pointed out a waste rock storage area for the mine would exist
for the approximately 2.5 inch rock, which may make good
aggregate; however, this is not yet known. In further response
to a question, he agreed the mine would be in Alaska on the
south end of Prince of Wales Island.
3:35:47 PM
REPRESENTATIVE SADDLER asked for the impact of the financial
prospects of the development of the Bokan-Dotson Ridge mine if
the lending authority is authorized under the bill.
MR. COLLISON answered that the mine would create approximately
200 fulltime jobs, most of which would come from Prince of Wales
Island or Ketchikan. The typical mining job in the state pays
approximately $80,000-$100,000 per year. These are good jobs
that can support families. Additionally, the mine will create
some indirect jobs in the area.
3:36:23 PM
REPRESENTATIVE SADDLER asked whether he could identify where the
product would be used.
MR. COLLISON said that this project will put in a separation
plant, which is new technology used to recover platinum and
pluatium from catalysts. The mine is proposed to produce 16
rare-earth elements, including dysprosium, terbium, and
europium. He said key uses of these elements are through a
contract with the U.S. Department of Defense since high-
technology weaponry requires rare earth minerals. Further, rare
earth minerals are used for electric cars, hybrid cars, wind
turbines, and solar panels. Currently, over 95 percent of the
heavy rare earth minerals consumed on the earth are produced in
China. He quantified that the Bokan-Dotson Ridge mine is
anticipated to produce over 50 percent of the U.S. needs for
dysproseum and about 10 times what the DOD will need. He
characterized these minerals as unique and the advantage of the
small size needed is why these minerals are used in motors,
generators, and electric or hybrid cars.
3:37:44 PM
REPRESENTATIVE CHENAULT asked for the life expectancy of the
mine.
MR. COLLISON answered that the mine expectancy is currently 11
years, but he thinks that once the mining operation reaches 10
years, it will stop drilling since adding five more years
wouldn't justify the mine. He said, "Miners like to mine. The
trick is to get it going." He pointed out that Red Dog and
Greens Creek mines have lasted two or three times what they were
originally planned, yet they each have ore bodies that have not
yet been mined.
3:38:19 PM
REPRESENTATIVE JOSEPHSON asked whether he had any sense whether
processing minerals on Gravina Island is good for the
environment.
MR. COLLISON suggested that the Gravina Island is what the
Niblack mine is proposing. The Bokan-Dotson Ridge mine project
will process the tailings onsite.
REPRESENTATIVE JOSEPHSON asked whether he could describe any
local hire efforts for the 200 anticipated jobs.
MR. COLLISON answered that the mine has begun efforts in Juneau
at the University of Alaska Southeast and with the vocational
training in Ketchikan and Craig. He said, "Local hire is one of
my pets. It's the right thing to do for the area, but it's also
the right thing to do for the mine." He related that he has
built three mines thus far so this mine will be his fourth. He
said that one mine, a small open pit mine in Nova Scotia, ran
with two people in the pit who were not local, the blaster and
the shovel operator, since the pit shovel was worth $5 million.
He said two people were "from away" since they hadn't lived
there for three generations. He said the rest were local people
and the mine had very low turnover with a really good safety
record. Additionally, he said, it is cheaper and better to run
the mine for the community [to use local hire].
3:40:28 PM
PATRICK SMITH, President & Chief Executive Officer, Heatherdale
Resources, Ltd. stated that his company has ownership of the
Niblack [copper-gold-zinc-silver] project in Southeast Alaska.
3:41:16 PM
REPRESENTATIVE JOSEPHSON asked for clarification on the
processing at Gravina Island and why the decision was made to
move the minerals across the water.
MR. SMITH explained the Niblack Mine is a similar underground
mine for the Niblack as for the Ucore project. The Niblack Mine
would produce similar production rates as with 1,500 to 2,000
tons per day, similar to Greens Creek. He explained that when
the mine investigated ways to improve the overall operation, the
Niblack considered barging the material to an offsite location
for the milling. He related that they looked at quite a few
options in Alaska. The mine needs power capacity since the
Niblack site mine would need to generate its own power through
diesel or other means. The hydroelectric power capacity in
Ketchikan was a very big "plus" with the infrastructure located
at the Gravina Island industrial complex with an existing cable
across the Tongass Narrows. Additionally, the workforce can
live there, commute, and their children can go to school in
Ketchikan. A third advantage would be the hydroelectric power
usage so it would also provide cleaner energy for the mill site,
which consumes a lot more energy than the mine itself. The
Gravina Island processing location is a "win-win-win" situation
since it provides local jobs and the tradeoff for barging
materials looks good, he said.
3:43:30 PM
REPRESENTATIVE JOSEPHSON asked whether the mine would be using
chemicals on Prince of Wales Island.
MR. SMITH said he couldn't say chemicals wouldn't be used on
Prince of Wales Island, which is where the mining would take
place; however, a stockpile would go on a pad, be loaded on a
barge, and then offloaded at Gravina Island where the processing
would take place. In the case with the Niblack mine, a large
percentage of the material would be back-loaded to Niblack and
put back underground.
3:44:25 PM
REPRESENTATIVE SADDLER asked how the AIDEA funding fit into the
mining project financing.
MR. SMITH reported that the Bokan-Dotson Ridge mine is in the
advanced stage of exploration. The company has conducted
substantial engineering scoping work, and based on the
production schedule, anticipates capital expenditures of
approximately $200 million for mine, mill, and infrastructure.
The project has been considering different scenarios so he
characterized the figures as "ball park" figures.
3:45:15 PM
CHAIR OLSON asked whether the original business model is similar
to what is happening in Skagway in which the ore is being
brought down from Whitehorse.
MR. SMITH answered yes; the Skagway terminal project is another
AIDEA project.
3:45:35 PM
REPRESENTATIVE SADDLER asked for further clarification on the
rest of the financing.
MR. SMITH answered that the [Bokan-Dotson Ridge] project must
still undergo pre-feasibility and a feasibility studies, and it
must meet all the objectives internally. At that point, the
financing becomes part of a larger group of potential financing,
including AIDEA, or equity and debt financing elsewhere. He
commented that AIDEA would be part of this process. One of the
advantages of SB 99 is that the mining project wouldn't get
caught up in a timeframe in which the mine is ready for
production but must wait for legislative approval for AIDEA
financing. This bill would remove that delay, he said.
3:46:35 PM
REPRESENTATIVE SADDLER asked how critical the AIDEA financing is
to the project.
MR. SMITH answered that the AIDEA financing shows tremendous
state support. He related that the project has a Memorandum of
Understanding (MOU) with AIDEA, a MOU with the Ketchikan Gateway
Borough, and will work over the next 14-18 months on how to
collaborate with AIDEA and the Gravina Island Industrial site to
make it a workable situation.
3:47:15 PM
REPRESENTATIVE JOSEPHSON asked whether Heatherdale Resources
Ltd. would take a similar position as Mr. Collison with Ucore's
Bokan-Dotson project that it is beneficial to hire Alaskans and
if it is something Ucore would plan to do.
MR. SMITH said absolutely. Ucore has been very successful thus
far over the exploration part of this project. He reported that
since 2009, Ucore has spent $37 million on the project and have
engaged with over 60 vendors in Southeast Alaska in the
Ketchikan area and Prince of Wales Island. It has a partnership
with the Prince of Wales Tribal Enterprise Consortium, LLC
(POWTEC) that provides hiring and substantial logistical
support, which he characterized as being "extremely good."
3:48:18 PM
CHAIR OLSON asked if the lifetime of the Ucore mine project is
projected at 10 years.
MR. SMITH answered that it will depend on the production rate.
Currently, Ucore has been projecting a 10 to 14-year mine life.
He said he has every confidence that this mine will continue
once it is up and running.
3:48:42 PM
TED LEONARD, Executive Director, Alaska Industrial Development &
Export Authority (AIDEA), Department of Commerce, Community, &
Economic Development, in response to Chair Olson, agreed that
AIDEA has approximately 29 years of a relationship with the
mining industry through funding infrastructure for ports and
facilities. For example, AIDEA funded the tailings facility for
Fort Knox through a conduit revenue bond in the late 1990s.
3:49:47 PM
REPRESENTATIVE JOSEPHSON asked whether he could respond to the
concern about the conflict of the state being an owner and a
regulator.
MR. LEONARD answered that AIDEA is a political subdivision of
the state as an independent corporation so it is not a
department. Thus, he considered that a major firewall exists
between AIDEA and its investments and any of the regulatory
agencies. He reported that AIDEA's balance sheet rolls up into
the state, but it is AIDEA's balance sheet. He recalled
instances in which AIDEA has entered into agreements with the
Department of Environmental Conservation for regulation of the
Skagway Ore Terminal. Additionally, regulatory decisions have
been made on the Red Dog Mine that affected AIDEA, but AIDEA
would never attempt to influence a regulatory agency, which is
not acceptable or probably legal.
3:51:16 PM
CHAIR OLSON asked whether AIDEA also has financed roads to
mines.
MR. LEONARD answered that yes; AIDEA owns the port and road to
the Red Dog mine.
3:51:29 PM
REPRESENTATIVE CHENAULT asked for the balance in the
[Sustainable Energy Transmission and Supply Development Fund
(SETS)].
MR. LEONARD answered that the SETS fund balance is approximately
$67.5 million, and AIDEA just requested transfer of the $125
million appropriated from passage of SB 23, but AIDEA has not
yet received those funds.
REPRESENTATIVE CHENAULT recalled the legislature is also
considering a bill that would remove all the funding from the
SETS fund.
MR. LEONARD answered yes; he acknowledged that it would wipe out
original SETS funding.
3:52:15 PM
REPRESENTATIVE CHENAULT noted that AIDEA has loaned two amounts
to natural gas entities in Fairbanks: $15 million to Fairbanks
Natural Gas (FNG) for the initial build-out for pipes for the
Fairbanks distribution system and $18.1 million to Interior
Natural Gas utility to fund initial development work on the
distribution system that surrounds the FNG. He said he realized
20-year negotiated loans. He asked for clarification on the
effect of the potential $67 million transfer from the SETS fund
to fulfill either of these projects.
MR. LEONARD answered that the bill would not affect the loan
obligations for these two loans since they would be derived from
the second $125 million. He acknowledged two loans, one to the
FNG for $15 million for the initial build out in 2014 for pipes
for its system. The other loan would start the development of
the second service area that somewhat surrounds the FNG area.
MR. LEONARD related his understanding that the potential capital
project [that would deplete the SETS fund] would stop AIDEA's
ability to fund other projects for renewable energy, such as
wind farm and other projects. He summarized that the SETS fund
would become a holding fund for funding the [Interior Energy
Project] IEP and any future projects that the legislature will
fund, but it would not be an ongoing fund, per se.
3:54:36 PM
REPRESENTATIVE CHENAULT referred to current SETS projects,
including the FNG's proposed liquefaction plant in Port
McKenzie. He asked for an update on the project with respect to
other natural gas projects.
MR. LEONARD explained that AIDEA is in preliminary pre-
feasibility to see if the project will be feasible and whether
the project would be using Cook Inlet gas. He said that thus
far there hasn't been any true work on that, although AIDEA is
in the process of considering a reimbursement agreement. He
pointed out that would be in conjunction with working with the
Alaska Gas Development Corporation (AGDC) and any other
activities. In response to a question, he clarified that IEP
refers to the Interior Energy Project funded from SB 23 for
trucking natural gas to Fairbanks and to build out the
distribution center.
3:56:25 PM
DAN BOCKHORST, Manager, Ketchikan Gateway Borough (KGB),
explained that the Ketchikan Gateway Borough assembly has
endorsed SB 99. He thinks Mr. Leonard, Mr. Collison, and Mr.
Smith have effectively addressed the issues raised by Mr.
Sullivan. He reiterated that the KGB endorses SB 99. He urged
committee members to support the bill.
3:57:19 PM
CHAIR OLSON, after first determining no one else wished to
testify, closed public testimony on SB 99.
REPRESENTATIVE CHENAULT offered his belief that this would
provide legislative intent to approve two of the projects. He
asked whether the Niblack project is on Gravina Island.
MR. SMITH said that the Niblack project is located on southern
Prince of Wales Island. The Gravina Island industrial complex
would be the site for the milling.
REPRESENTATIVE CHENAULT related his understanding that there
would be two sites for the project.
REPRESENTATIVE REINBOLD moved to report CSSB 99(L&C) out of
committee with individual recommendations and the accompanying
fiscal notes. There being no objection, CSSB 99(L&C) was
reported from the House Labor and Commerce Standing Committee.