Legislature(2003 - 2004)
04/27/2004 01:42 PM Senate TRA
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
SB 394-AIDEA BONDS FOR LYNN CANAL PORT
The committee took up SB 394.
MR. ZACK WARWICK, staff to Senator Therriault, presented the
bill and testified that SB 394 authorizes Alaska Industrial
Development and Export Authority (AIDEA) to issue tax-exempt
bonds to finance port and port related projects on Lynn Canal in
Southeast Alaska, specifically for the Kensington Mine Project.
He noted that committee members have an overview of the
project's re-design that would include a port from Cascade Point
to Slate Creek Cove, and would use existing road systems that
would be upgraded to get to Kensington Mine. This is required
under statute for any project over $10 million. At this point,
these are estimated numbers, but authorization was requested so
that if cost exceeds $10 million, tax-exempt bonds would be
issued to finance this program. This doesn't guarantee funding
would go forward, it just provides authorization to look at the
project. The project would still have to meet the four criteria
set out in statute.
MR. JIM McMILLAN, Deputy Director of Credit and Business
Development, AIDEA, testified that the bill pertains to two dock
facilities supporting the Kensington Gold Project, proposed to
be financed under this legislation. There are two basic
requirements under IRS code addressing financing with tax-exempt
proceeds: the docks must be owned by a government entity, and
dock facilities must be available for the likelihood of public
use. That determination has not been made yet. Because of the
location of these two facilities, especially the one on the
northern end of the Berners Bay - Slate Creek - AIDEA's bond
counsel will be seeking an IRS letter ruling for the
determination of public use to ensure either one or both
projects qualify for tax-exempt financing. That process may
take up to six months; however, Coeur is hoping to start
construction later this summer or early fall. The reason for
the timing of this legislation is to receive authorization if
due diligence falls in place so that the bonds can be issued.
MR. TIM ARNOLD, V.P. and General Manager of Coeur Alaska Inc.,
representing Coeur d'Alene Mines Corporation, said he was
available to answer questions about the Kensington Gold Mine
Project.
CO-CHAIR COWDERY noted there were no further questions and asked
for the will of the committee.
SENATOR GEORGIANNA LINCOLN commented she had received SB 394
about 10 minutes prior to the meeting, that the bill had just
been introduced on the 22nd of April, and she was hoping to have
more of an opportunity to review the information. She said the
proposed Juneau access project has considered developing an
Alaska Marine Highway ferry terminal in Berners Bay, and asked
if this project would be available for bonding through AIDEA.
MR. McMILLAN responded that with tax-exempt proceeds, AIDEA can
finance an exempt facility such as a dock if it meets the two
requirements of government ownership and the likelihood of
public use. He said because he wasn't familiar with the project
she was referring to, he was hesitant to answer directly other
than to outline those two criteria.
SENATOR LINCOLN referred to the fiscal note, "The bill provides
$20 million in bonding authorization" and asked if the $20
million bond would prevent other applicants with large projects
from applying.
MR. McMILLAN said if this legislation passed, AIDEA is
authorized to issue up to $20 million in bonds for a port
development project on Lynn Canal. Assuming that a sum less
than $20 million was needed for the two dock projects related to
Kensington, then this authorization would allow AIDEA to utilize
the difference for another port development project on Lynn
Canal.
SENATOR DONNY OLSON asked about other reasons for developing a
port other than Kensington.
MR. McMILLAN responded, "We're not saying that there is or is
not another reason for developing it. We are looking at these
two projects, both the Cascade Point and the Slate Creek, for
supporting the Kensington Mine, but to do it by the issuance of
tax exempt bonds, it has to be owned by the government, and it
also has to be available for public use."
SENATOR OLSON asked if the parent company would be charged for
the use of this port, after it's been built.
MR. McMILLAN replied this was correct. If the legislation
passes and bonds are issued, there will be some type of user fee
that will re-pay the bond proceeds and generate a reasonable
return to AIDEA.
SENATOR OLSON asked if a private person or tourist would pay a
fee to use the port.
MR. McMILLAN said there has been discussion of assessing a fee
for individual use.
SENATOR OLSON said he was hoping for more of a yes or no answer
regarding whether there would be a charge for private as opposed
to commercial use.
MR. McMILLAN replied that he didn't have a specific answer right
now, but his perception is a fee won't be charged to individual
boaters tying up to the dock.
SENATOR OLSON reflected on current global unrest and the high
price of gold and said, "Let's say that the price of gold drops
after the presidential election or after a semblance of peace
comes in the Middle East. How do we make sure that this port
facility, or these two port facilities that are involved don't
turn into another seafood-plant-type project that's there in
Anchorage, or Point Mackenzie farm situation, or even the Delta
Junction farm debacles that we've seen happen in the past?"
MR. McMILLAN acknowledged that any project involves risk and
attempts are made to mitigate that risk. There will be
extensive due diligence, Coeur's underwriters will find a
placement for the purchase of those bonds - either a private or
public offering - and underwriters in the market will determine
the structure and the required credit enhancements to mitigate
the risk. AIDEA's agreement for operation or repayment of a fee
is supposed to be with Coeur Alaska Inc., which is a fully owned
subsidiary of Coeur d'Alene Mines Corporation. An available
credit enhancement would be the guarantee of the parent
corporation. Through due diligence, if financial standing is
deemed un-satisfactory, purchasers of the bond and AIDEA would
look to other potential credit enhancements to assure the
project is successful.
SENATOR OLSON asked where Coeur d'Alene Mining Corporation's
parent offices were located.
MR. ARNOLD responded that Coeur d'Alene Mines Corporation was
located in Coeur D'Alene, Idaho. Coeur Alaska Inc. is located
in Juneau.
SENATOR GENE THERRIAULT asked if public use of the Coeur
facility would be immediate.
MR. McMILLAN responded that this requirement would need to be
satisfied at the outset. His understanding is that it wouldn't
be necessary that the public use occur simultaneously with the
completion of the facility, but there would need to be assurance
that there is the likelihood of public use during the life of
the project.
SENATOR THERRIAULT asked if the two port facilities fit under
the $20 million, or if surplus authorization might be used for
some Coeur facility on the Lynn Canal; he asked for an estimated
cost of the two mine-associated dock facilities.
MR. McMILLAN replied that as a conceptual design, according to
preliminary discussions with the engineer, the projected cost
budget is approximately $10 million. This is a very preliminary
cost estimate, and probably additional geotechnical work is
necessary which could drive up the cost, and also the IRS code
allows for financing improvements that are ancillary and related
to the primary project. "It is too soon to indicate if there
are some other improvements that could be thrown in this
package. If that is the case, we may get much closer to the $20
million," he said.
SENATOR OLSON asked if this was a hard rock mine.
MR. ARNOLD said yes, it is underground hard rock.
SENATOR OLSON asked how to ensure that difficulties with
environmental concerns or objections that have been pointed out
within the past week at Kensington will not be encountered
MR. ARNOLD said he wasn't sure what Senator Olson was referring
to, but noted that the EIS has been addressed, and currently, a
supplemental EIS; the comment period ended April 7. Coeur is
currently going through the permitting phase.
SENATOR OLSON said he was referring to a major mine project that
had all of the permits in order, but is now shut down because of
difficulties.
MR. ARNOLD said there is always the opportunity for issues to
come up. Mining permits take years to get, so he honestly
couldn't predict what would happen.
SENATOR THERRIAULT asked if the port facility's infrastructure
would be needed only if the mine was permitted; would this
infrastructure be built if the mine were not permitted?
MR. ARNOLD said the facilities would not be built unless there
was a go-ahead on the permitting processes.
SENATOR THERRIAULT asked Mr. McMillan if there would be
restrictions that no infrastructure be built until the mine had
secured all necessary permits.
MR. McMILLAN replied that because of the timing of the issues
and the desire to start construction this year, due diligence
will need to begin immediately; this means an expenditure of
some funds. At the next board meeting on May 7, a cost
reimbursement agreement will be presented to the board to be
executed with Coeur d'Alene Mines Corporation. If the project
goes forward, this allows advance funds for due diligence to be
part of the financing package. If it does not go forward, a
reimbursement agreement, a promissory note, will be repaid.
Also, the bonds will not be issued and financing will not take
place from AIDEA until the feasibility study is seen and permits
are issued, that is, until the project is ready to go.
SENATOR LINCOLN asked if, without SB 394, Coeur would continue
with the mining.
MR. ARNOLD said yes.
SENATOR LINCOLN asked how this would be done without the port.
MR. ARNOLD questioned, "Without the port facility or without the
financing?"
SENATOR LINCOLN replied, "Without the port facility."
MR. ARNOLD said he misspoke. Coeur would need some sort of port
facility.
SENATOR LINCOLN asked, "Why don't you just do that?"
MR. ARNOLD said that with the permits for the Kensington Mine in
the supplemental EIS, there are two options. The option of
using AIDEA to create the facility offers the advantage of the
bonding issue and the tax-exempt financing. "This is a win-win
situation for both Coeur d'Alene Mines and the state of Alaska,
in our opinion. It helps us in one way. But at the end of the
day you end up with a port facility and it belongs to the state
of Alaska." If Coeur d'Alene Mines creates the port without
using AIDEA financing, Alaska will not own the port and when
mining is finished, the port facility would be taken away.
SENATOR LINCOLN asked how the requirement for public use of the
port is envisioned.
MR. ARNOLD said it wasn't envisioned yet. That is something
that AIDEA and Coeur d'Alene Mines need to discuss. He noted
that the timing is unfortunate because the current level of
detail is not the final detail, and the [legislative] session
will end in a matter of weeks. The details will be available at
the end of May.
SENATOR LINCOLN said this bill had been introduced the 22nd of
this month, and she assumed Coeur approached the Legislature to
introduce this.
MR. ARNOLD responded he wasn't sure whether Coeur or AIDEA
approached the Legislature.
SENATOR THERRIAULT told members that AIDEA representatives had
contacted him and other legislators about the port
infrastructure possibly going over the current statutory $10
million, and the need for increased authorization.
SENATOR LINCOLN said the project has been in the works for a
while and asked why on April 22nd it was determined that the
project might go over $10 million.
SENATOR THERRIAULT said this could be answered by Coeur or
AIDEA, but thought it had become clearer as numbers were firmed
up.
MR. McMILLAN offered that while the project has been on the
drawing boards for quite a while, the most recent discussions
with Coeur regarding AIDEA's providing financial assistance has
only occurred during the past month and a half. "Coeur came to
us and said they were ready. We laid out potentials for them,
and these two projects being potentials under development
financing." He acknowledged the timing as unfortunate, but to
move forward under development finance, authorization from the
Legislature is required.
SENATOR LINCOLN said the US Forest Service owns the land on
which most of the mine will be situated, and their EIS won't be
completed until September at the earliest. She asked if AIDEA
begins evaluating the project before the project is actually
permitted to proceed.
MR. McMILLAN said yes. The project begins immediately after the
May 7th board meeting, assuming the board authorizes entering
into a cost reimbursement agreement. Regarding Cascade Point,
some if not all of the property on the south side of Berners Bay
was owned by Goldbelt Corporation. A lease will need to be
negotiated for the use of that property. He said he thought
Senator Lincoln was correct regarding the northern side. He
said he understood the EIS to be rendered in June unless it is
extended.
SENATOR LINCOLN asked Mr. Arnold if this loan would be going to
Coeur Alaska, Inc.
MR. ARNOLD deferred the question regarding the workings of
finances to AIDEA.
SENATOR LINCOLN asked about a guarantee by the parent company,
and whom the loan would be going to.
MR. McMILLAN said it is proposed that the parent company, Coeur
d'Alene Mines Corporation, will issue a guarantee that there may
be additional mitigates of risk, or credit enhancements.
CO-CHAIR WAGONER asked for an expansion of the guarantee from
the parent company, wondering if this was a letter of credit, or
what type of guarantee would need to be provided to AIDEA if
this project moves forward.
MR. McMILLAN said AIDEA normally goes into it knowing it will be
an unsecured guarantee, meaning they will be standing behind the
payment by Coeur, of the user fee, with all of the assets of
Coeur d'Alene Mines Corporation.
SENATOR LINCOLN questioned if this was the normal legislative
procedure, without going into the timing or the guarantee.
SENATOR THERRIAULT responded that Mr. McMillan could say for
certain.
MR. McMILLAN said that is correct. He said there are
similarities with previous authorizations for other development
finance projects. There isn't more detail because statute
merely requires authorization from the Legislature if bonds are
in excess of $10 million, and also because the statute sets
forth very specific requirements before the financing can take
place.
CO-CHAIR WAGONER asked what Coeur d'Alene Mines Corporation's
total assets were.
MR. ARNOLD said he didn't know but could find out.
SENATOR LINCOLN asked if $12 million was an estimate for this
project, why was "not to exceed $20 million" specified?
MR. McMILLAN explained the project's budget is not firm at this
point and also the code allows financing for related
improvements. Although the conceptual cost estimate of the two
dock facilities is within the $10 million range it will likely
be higher with the final design. If the $20 million
authorization passes, AIDEA will only issue bonds up to the
required amount to finance portions of the project that qualify.
The remaining amount could be used for other qualifying Coeur
development projects in Lynn Canal.
SENATOR LINCOLN reviewed that Coeur was asking for $2.9 million
for the Cascade Point dock, $4.4 million for the Slate Creek
dock, which total $7.3 million; that leaves $12.7 million for
the uplands. She asked if these figures were correct.
MR. ARNOLD said yes those were the preliminary numbers.
SENATOR LINCOLN asked if the balance would be tied to this
project or if it could be used in another part of the state.
MR. McMILLAN said the authorized amount left over could
potentially be used for the [indisc.] rural development project,
meeting the IRS requirements, that is, "a port development
project on Lynn Canal" so if there was a feasible project and
issued bonds could be repaid, AIDEA would look at the project
and its location to see if it meets the intent of the original
authorization. He said, "It's a hard question to answer
specifically at this point. It wouldn't necessarily have to be
related to this mine project."
SENATOR LINCOLN asked if it was AIDEA's language to allow for
development of other areas in Lynn Canal.
MR. McMILLAN reported that once the determination was made that
Coeur wanted to move forward and legislation was required, AIDEA
provided sample language to Coeur. This is the result of
discussions between Coeur and AIDEA, attorneys at Legislative
Legal and AIDEA's assistant to the attorney general.
CO-CHAIR COWDERY announced that Representative Weyhrauch was at
the meeting and wanted to testify.
REPRESENTATIVE BRUCE WEYHRAUCH testified that Goldbelt, Inc.,
the Native Corporation that Mr. McMillan referred to, is called
such because there is gold throughout this area. The Kensington
Mine has worked long and hard to develop that project, and it
would provide tremendous employment and diversification
opportunities for this locality. The city of Juneau has worked
with Goldbelt, Inc. to develop lands and opportunities. This
project seems to meet the exact statutory criteria in AS
44.88.095, as the project is economically advantageous to the
state and the general public welfare and will contribute to the
state's economic growth.
REPRESENATIVE WEYHRAUCH continued that Senator Olson had
mentioned potential impacts to the Pogo Mine and the drop in
gold prices. The state has relied on mining opportunities to
develop the economy. The project applicant is financially
responsible, has developed huge mining operations throughout the
world, and is the likely candidate to support AIDEA in issuing
these bonds. Work has been done with the Southeast Alaska
gillnet fleet to address water quality and fishing issues in the
area. The other statutory requirement is to provide and retain
employment related to the amount financed by the authority in
consideration of the amount of investment per employee for
comparable facilities and other related relevant factors. The
Red Dog Mine Dock and the Federal Express terminal in Anchorage
seem to fall within that criterion.
REPRESENTATIVE WEYHRAUCH said this meets the employment,
resource development, and public use need for this type of
facility. It would be rare for boats to use this dock because
there are dock facilities in Skagway and Haines just north of
the facility and in Auke Bay just south of the facility.
However, in most cases in Alaska, if a mariner needs a dock for
emergency purposes, this would be readily available. In
addition, beyond the life of this project, there will be access
to public lands in that area for hunting, fishing, hiking,
camping, and so forth. Beyond the intended purposes of the
dock, this provides a valuable public resource for people, some
of whom may be opposed to the mine. He expressed his support on
behalf of a community that needs this resource development and
opportunity for diversification.
SENATOR THERRIAULT asked Mr. McMillan if there was currently
statutory authority to put together projects of up to $10
million.
MR. McMILLAN said if the project is financed under the
development finance program, this would apply if the facility
was owned. He clarified that the proposed financing structure
of the two docks was a hybrid of two of the programs.
TAPE 04-19, SIDE B
MR. McMILLAN continued that issuing general obligation bonds
means AIDEA was at risk for repayment of those bonds if there
was a default. That has been subsequently corrected in a future
refunding. Another example of a similar project is the sale of
Snettisham. AIDEA owned the facility but the type of financing
was a conduit bond as indicated in the fiscal note. Under a
conduit bond, the assets, credit [indisc.] or authority are not
at risk, and that's what is being proposed here. AIDEA's
ownership is [indisc.] classified as non-ownership in order to
give lower-cost financing issuance of tax-exempt bonds. AIDEA
will have title to the facility but will not be at risk for
repayment of bonds that will be issued. That also speaks to
Senator Olson's earlier concern about future risk. He thought
due diligence would be more extensive on the part of people or
entities who buy these bonds.
SENATOR WAGONER said he's had inherent distrust of AIDEA. He
then asked what facilities are being talked about in SB 394
other than the construction of ports.
2:30 p.m.
MR. McMILLAN replied that no related facilities have yet been
identified. Because of the timing and preliminary discussions,
AIDEA wanted to allow for related facilities such as fuel
storage, for example.
SENATOR LINCOLN referred to the $12.7 million and asked if AIDEA
could resolve an amount, up to the $20 million cap, that Coeur
is willing to bond for regarding related facilities on Lynn
Canal.
MR. McMILLAN said this was probably correct but thinks it
requires a separate bond issue which would double the issuance
cost. If the project were clearly going to be under $10
million, then legislative authorization would not be required.
They really don't know yet about the issues of preliminary costs
and capital improvements, and would like to include it under one
issuance to minimize issuance costs.
SENATOR WAGONER said he would like to know the value of Coeur
d'Alene's assets before voting on SB 394. He repeated that he
has an inherent distrust of AIDEA, that he's seen the ASI
building in Anchorage that will cost the state several million
dollars, and he doesn't want the state to get into another
similar situation with AIDEA.
MR. ARNOLD told committee members he had just been informed that
the parent company's assets are currently $258 million.
SENATOR THERRIAULT moved to report SB 394 and the accompanying
fiscal notes to the Senate Finance committee for review, with
individual recommendations.
SENATOR LINCOLN objected and spoke to her objection. She said
even though she was able to ask questions during the meeting,
she was uneasy about not knowing how all the pieces will fall
together. Her questions were financial in nature and she would
relate those question to members in Finance. With that, she
withdrew her objection.
CO-CHAIR COWDERY acknowledged there were no further objections
and announced the bill was so moved.
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