Legislature(1993 - 1994)

04/18/1994 09:10 AM FIN

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
  CSSB 371(RES):      An   Act   providing   for   exploration                 
                      incentive    credits    for   activities                 
                      involving    locatable   and    leasable                 
                      minerals  and  coal deposits  on certain                 
                      land in the state; and providing  for an                 
                      effective date.                                          
                      Steve Borell, Executive Director, Alaska                 
                      Miner's   Association,  testified,   via                 
                      teleconference   from    Anchorage,   in                 
                      support of SB 371.  Gerald L. Gallagher,                 
                      Director, Division of Mining, Department                 
                      of  Natural  Resources,  spoke   to  the                 
                      concerns  of  the  department  with  the                 
                      bill.   David Rogers,  and Kent  Dawson,                 
                      lobbyists, Council of  Alaska Producers,                 
                      spoke  in  support of  the  bill.   CSSB
                      371(RES)  was  HELD  in   committee  for                 
                      amendments  from   Senators  Kelly   and                 
                      Kerttula.    SB  371  was scheduled  for                 
                      April 19, 1994.   (HB  498 is the  House                 
                      companion bill.)                                         
  CS FOR SENATE BILL NO. 371(RES):                                             
       An Act providing for exploration incentive credits  for                 
       activities  involving  locatable and  leasable minerals                 
       and coal  deposits on  certain land  in the  state; and                 
       providing for an effective date.                                        
  Co-chair  Pearce  announced  that  SB  371  was  before  the                 
  At  this  time  the  meeting  was  joined  by Steve  Borell,                 
  Executive   Director,   Alaska   Miner's  Association,   via                 
  teleconference from Anchorage.                                               
  End SFC-93 #73, Side 1                                                       
  Begin SFC-93 #73, Side 2                                                     
  STEVE BORELL said he would testify in support of SB 371.  He                 
  said  the  stages  of  a  project   were  broken  down  into                 
  exploration,  development,  and actual  production.   It had                 
  been  estimated  that  for  every  project that  becomes  an                 
  operating mine, major mining companies would  investigate at                 
  least  1,000 exploration  targets.   If the  results of  the                 
  initial investigation were encouraging the evaluation effort                 
  was  expanded  to  include  more   tests  and  drilling  was                 
  increased to  smaller spacing.   Drilling  was necessary  to                 
  prove minable deposits.   Once the drilling  had defined the                 
  deposit to be economical, bulk samples of several tons would                 
  be taken and tested for metallurgical recovery and to define                 
  the type  of  milling and  recovery  process that  would  be                 
  required.   At this point,  there was still  no mine  or any                 
  guarantee that there would be one.  The exploration stage of                 
  the  project then ends  when a  feasible study  was complete                 
  which  could  convince  the  financial  markets  to  provide                 
  funding to build the project.                                                
  At that point, the project moved into the development stage.                 
  The  bill would no longer apply to this part of the project.                 
  He talked  to people  at the Red  Dog Mine, and,  in general                 
  terms,  from   1977-86,  approximately  $25M  was  spent  on                 
  exploration work.  In 1987-89, the development period, $350M                 
  was  spent   on  actual  construction  of   facilities  (not                 
  including the road  which was an  additional $100M+).   From                 
  November 1989 to  present, during the operating  mode, there                 
  has  been  an  annual  payroll of  $25M  a  year,  operating                 
  supplies and services of  about $35M a year, and  fuel costs                 
  of about $10M for a total annual cost of $70M a year.                        
  Mr. Borell went on to explain that this credit was a minimal                 
  amount of money but significant because of where it appeared                 
  (in the exploration  stage) and  the encouragement it  could                 
  give a company.                                                              
  Senator Kerttula agreed that mining  was a tough occupation.                 
  He said he was  worried about school taxes and would like to                 
  figure out a way to recover those costs.  Since there was no                 
  state income  tax, it  was harder to  do that.   He  did not                 
  agree with giving any credit for non-residents.                              
  In response to  Senator Kerttula's remarks, Mr.  Borell said                 
  the only people  hired that  were non-residents were  highly                 
  technical people that might  not be able to be found  in the                 
  state.  In the  case of big companies, one  technical person                 
  might follow projects all over the  world.  Senator Kerttula                 
  still  was   opposed  to  giving  non-residents   credit  in                 
  GERALD   L.  GALLAGHER,   Director,   Division  of   Mining,                 
  Department of  Natural  Resources, said  the department  had                 
  some concerns about  SB 371.   The primary problem was  that                 
  the mining  industry contributes  so little  to the  general                 
  fund and  creating a back door  out of the general  fund did                 
  not seem like  good policy.   He  felt this  type of  credit                 
  would become the new "floor" and after six months  or a year                 
  it would be forgotten that it was an incentive.  One example                 
  was the mining license  tax that changed about a  decade ago                 
  to give the mining industry a 3-1/2 year exemption at start-                 
  up from paying that fee.  The intent was to let them recover                 
  their initial costs.   He pointed out that the  royalties of                 
  locatable  minerals  was  3  percent  of  net  again.    The                 
  Department was concerned  that incentives  would become  the                 
  new "floor".  Senator  Kerttula agreed that Alaska  was very                 
  developmentally minded and encouraging in these programs.                    
  Mr. Gallagher said the  state royalty on coal was  5 percent                 
  of  the adjusted  gross  or about  $1/ton  depending on  the                 
  deposit.   That  was the low  or middle of  what most states                 
  charge for coal.  The royalty  on relocatable minerals was 3                 
  percent of  the net and that  was very low in  comparison to                 
  other states.                                                                
  In  answer to  Senator  Rieger, Mr.  Gallagher said  that he                 
  thought  the bill would  not include credit  for drilling at                 
  the  edge  of a  deposit  to prove  or  delineate additional                 
  reserves since that was development and not exploration.                     
  DAVID ROGERS, lobbyist, Council of  Alaska Producers, a non-                 
  profit corporation that consisted  of a number of the  large                 
  hardrock mining companies doing business  in the state, said                 
  they supported SB 371.   He pointed out that  the Department                 
  of Natural Resources was taking a different view of the bill                 
  than they had  previously expressed in  the House.  He  also                 
  wanted to point  out that the  emphasis on the general  fund                 
  was misleading.   He thought it was not clear  if the impact                 
  would be positive or negative.                                               
  In  answer  to   Senator  Rieger's   previous  question   of                 
  developmentally  drilling, Mr.  Rogers thought  those issues                 
  should be clarified in regulations.  Senator Kelly suggested                 
  those issues  be outlined in the  bill.  Mr. Rogers  did not                 
  object to that.                                                              
  Discussion was  had by  Co-chair Frank,  Senator Kelly,  and                 
  Kerttula regarding tax  policy for  resource development  in                 
  the state.                                                                   
  KENT  DAWSON, also  a lobbyist  with the  Council of  Alaska                 
  Producers, said the  state of  Alaska owned a  lot of  land,                 
  there were minerals out there, and the idea was to encourage                 
  exploration and be competitive with the rest of the world in                 
  the development and production stages of a project.                          
  Senator Kelly pointed out that SB 371 would cover private as                 
  well as state land.                                                          
  Mr. Dawson said the state's  tax structure also effected all                 
  land so the state was in charge of adjusting that structure.                 
  In  answer to Senator  Rieger, Mr. Rogers  said according to                 
  his memory, the annual exploration budget of firms operating                 
  in  Alaska  was   approximately  $28M  last  year   and  was                 
  decreasing.  Mr. Dawson said that companies made choices and                 
  decisions and one factor depended  on the regulatory climate                 
  and   the  apparent  willingness  of  the  jurisdiction  for                 
  acceptance.    He  had  heard a  positive  response  to  the                 
  possibility of an  incentive credit available in  Alaska for                 
  Senator Kerttula made his point again that he was opposed to                 
  hiring non-residents and he did not want to encouragement it                 
  in  any way.  Mr.  Rogers said that  it was a  cost of doing                 
  business  and that  cost should not  be penalized.   Senator                 
  Kerttula reiterated his opposition to giving credit for non-                 
  resident hire.                                                               
  Senator Kelly requested  that Mr. Rogers draft  new language                 
  delineating  what  would  qualify  for  exploration  credit.                 
  Senator Kerttula said  he would like to propose an amendment                 
  to modify or reduce the non-resident credit.                                 
  Co-chair  Pearce announced  SB 371 would  be HELD  until new                 
  language or amendments could be drafted.                                     
  SCHEDULED BUT NOT HEARD:                                                     

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