Legislature(1999 - 2000)
03/29/2000 12:55 PM House RES
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
JOINT MEETING HOUSE RESOURCES STANDING COMMITTEE SENATE RESOURCES STANDING COMMITTEE March 29, 2000 12:55 p.m. HOUSE RESOURCES MEMBERS PRESENT Representative Bill Hudson, Co-Chair Representative Carl Morgan Representative Reggie Joule HOUSE RESOURCES MEMBERS ABSENT Representative Beverly Masek, Co-Chair Representative John Cowdery, Vice Chair Representative John Harris Representative Ramona Barnes Representative Jim Whitaker Representative Mary Kapsner SENATE RESOURCES MEMBERS PRESENT Senator Rick Halford, Chairman Senator Pete Kelly Senator Georgianna Lincoln SENATE RESOURCES MEMBERS ABSENT Senator Robin Taylor, Vice Chairman Senator Jerry Mackie Senator Lyda Green Senator Sean Parnell OTHER LEGISLATORS PRESENT Representative Gene Therriault Representative Gail Phillips Representative John Davies Representative Alan Austerman Representative Eldon Mulder COMMITTEE CALENDAR Cominco Presentation: Red Dog Mine PREVIOUS ACTION No previous action to record. WITNESS REGISTER DOUG HORSWILL, Vice President Environment and Corporate Affairs Cominco Ltd. POSITION STATEMENT: Presented information on Cominco, the zinc market and the Red Dog Mine. HELVI SANDVIK, President NANA Development Corporation POSITION STATEMENT: Discussed NANA's partnership and the impact of the Red Dog Mine. JOHN KEY, General Manager Red Dog Operations Cominco Alaska Incorporated Red Dog Mine P.O. Box 1230 Kotzebue, Alaska 99752 POSITION STATEMENT: Discussed the Red Dog Mine and the necessary requirements for development in Northwest Alaska. ACTION NARRATIVE TAPE 00-26, SIDE A Number 0001 CO-CHAIR HUDSON called the joint meeting of the House Resources Standing Committee and the Senate Resources Standing Committee to order at 12:55 p.m. Members present at the call to order were Representatives Hudson and Joule, and Senators Halford, Pete Kelly and Lincoln; Representative Morgan arrived as the meeting was in progress. Other legislators in attendance were Representatives Therriault, Phillips, Davies, Austerman and Mulder. Number 0138 DOUG HORSWILL, Vice President, Environment and Corporate Affairs, Cominco Ltd., introduced those present. He informed the committees that he would be discussing Cominco and the zinc market, and the Red Dog Mine in relation to the zinc market. The presentation was titled "Partnership for Prosperity." He informed listeners that the primary partnership is between NANA, who owns the resource, and Cominco, who is the "money company" responsible for development; the state is also a partner through AIDEA (Alaska Industrial Development and Export Association). Mr. Horswill noted that Cominco is a little less than 100 years old and is primarily focused on zinc; it is the world's largest zinc mining company, is the fourth-largest zinc refining company, and has the world's largest ore reserves, which is really Red Dog. MR. HORSWILL discussed zinc, the primary product of Red Dog, noting that lead is also produced and that there is silver in the ore. He explained that the primary use of zinc is to protect steel from rust. Furthermore, zinc is a component of brass. Mr. Horswill pointed out that zinc is essential for human health as a micronutrient. Zinc is a product of the future and consumption is fairly widespread; Western Europe is the largest consumer, and the United States makes up 20 percent of the world's [zinc] market. The Asian and Latin American markets are the fastest growing markets. MR. HORSWILL said zinc's fairly strong growth is tied to the growth of the world economy. For instance, from 1980 to 1999 [it grew] at about 2.4 percent, which is about the level of industrial production growth in the Western world. In 1997 and 1998, there was the decline in Asia, which impacted the growth of zinc, although it rebounded quickly. He anticipates a higher trend in the future as the Third World catches up in terms of construction and infrastructure development. Therefore, Red Dog and its future are based in a strong and growing world market. The Red Dog Mine is the largest zinc mine in the world, with the second largest being Century, which is located in Australia. It is yet to be seen whether Century will achieve its target of 500,000 tons of annual production, he noted. However, Red Dog is already producing above capacity at 520,000 tons. Number 0603 SENATOR LINCOLN inquired as to the impacts Red Dog would experience if Century comes on board [at almost the same level as Red Dog]. MR. HORSWILL said he anticipates, in the short term, that the amount of revenue that Red Dog earns from concentrate sales will be reduced for about a year. He explained that concentrate from the mine is sent to a smelter refinery complex in order to change it into metal, and there is a charge at the smelter refinery that is implied. The more concentrate available in the market, the higher the charge; thus, as that charge increases, the actual revenues of the mine fall. However, that impact is expected to be short-term because with growth at 2.5-3.0 percent, the amount of zinc demand increase is rapid. Therefore, the additional production from Century will be quickly absorbed. In addition, many major mines are close to the end of their lives, including two mines owned by Cominco: Polaris, located in the high Arctic, and Kimberly, in the interior of British Columbia. Both will go off production by 2001/2002. He indicated it may take a couple of years for the market to catch up, but it will happen. Number 0725 MR. HORSWILL pointed out that another way to look at the size of an operation for a mine is in the ore reserves in the ground, which really determine the life, size and opportunities of that operation. In this area, Red Dog really shines because in terms of actual reserves and resources in the ground, Red Dog is almost twice the size of Century. In terms of reserves, McArthur River, Australia, is the next largest producing mine; however, it is substantially smaller. Due to exploration in the last year and a half, it is known that Red Dog will be larger [in the future]. MR. HORSWILL turned to the benefits that Red Dog has brought to Alaska, such as jobs. Red Dog employs about 380-400 people full time, and there is construction work that increases those figures. [Cominco's] spending in the state amounts to about $100 million. Therefore, he sees a significant impact as well as an opportunity for growth. He pointed out that over time more of the suppliers are in Alaska and thus more capable to supply the necessary things. MR. HORSWILL turned to AIDEA and noted that the initial investment for the port was $265 million, and Cominco's payments amounted to $125 million, of which about $5-$10 million is retained by AIDEA and contributed to the statement. In the end, [Cominco] will have paid for a port that will be able to be used as a regional facility and infrastructure in Northwest [Alaska]. Number 0915 HELVI SANDVIK, President, NANA Development Corporation, explained that NANA Development Corporation is the financial owner of NANA Regional Corporation. She announced that she would briefly discuss NANA's partnership and the impact of Red Dog. She said that Red Dog has allowed the NANA region to move down the path of self-sufficiency, as it has created job opportunities; it also has allowed NANA to benefit from the royalty stream and to look for new business opportunities. For example, NANA service companies receive about $14 million of payments from Cominco for services provided to Red Dog. Through the life of Red Dog, NANA has received approximately $50 million in royalty payments, of which half have been distributed to the other regional and village corporations across the state. Therefore, the financial benefits of Red Dog have been spread across the state. Annually, Red Dog pays about $13 million in wages to residents of the NANA region, and another $13-$14 million in wages are paid to other Alaskans living throughout the state. MS. SANDVIK reiterated that Red Dog has opened the door to other opportunities. She explained, "Early on, the vision was that the infrastructure that would be put into place to support the mine would also be used as a benefit, to reduce the cost of living within our region." As a Native corporation with a profit objective, NANA sees a larger benefit/obligation to reduce the cost of living. Ms. Sandvik noted that NANA has begun to realize the dream this past year. For example, NANA has been working with Cominco and other partners in order to take advantage of the port and the large fuel storage capacity, which would provide fuel delivery to some of the villages located on rivers where the barges cannot necessarily come up every year. Therefore, [NANA] has been able to deliver fuel at a lower cost to some of the villages that have historically struggled. Ms. Sandvik acknowledged that there are other opportunities: as the current infrastructure needs to be modified in the future, the benefit of that will go beyond Red Dog. Therefore, she believes that the state will experience the benefit for many years to come. From NANA's perspective, Red Dog has had a tremendous start and is moving in the right direction. CHAIRMAN HALFORD inquired as to the current royalty percentage that NANA receives. MS. SANDVIK noted that the [royalty] percentage varies because it is dependent upon production. In 1999 NANA received about $6.5 million in royalty payments; in accordance with the [7I] sharing provisions of ANCSA (Alaska Native Claims Settlement Act), 50 percent of that was shared with other corporations. [MR. KEY], in response to Chairman Halford, said that would amount to 4.5 percent. Number 1140 JOHN KEY, General Manager, Red Dog Operations, Cominco Alaska Incorporated, informed everyone that Red Dog Operations is basically the Red Dog Mine and the operating unit for the DeLong Mountain Transportation System. He pointed out that the Red Dog Mine began production in 1989 and has been in a steady growth pattern since. In 1999, Red Dog produced 1.1 million tons of concentrate, of which 940,000 tons was zinc concentrate. Red Dog has demonstrated ten years of growth; in February, Cominco and NANA jointly approved an expenditure of $90 to $100 million to increase zinc production at Red Dog. Therefore, Red Dog's production will increase to 1.3 million tons of concentrate, with 1.1 million being zinc concentrate. In regard to mill optimization, Mr. Key specified that $100 million will be spent, [of which] $20-$30 million will be spent in Alaska. This will begin with the construction of two modules in the NANA Cominco Construction Facility in Anchorage, and thus production [of zinc concentrate] will increase to 200,000 tons. Therefore, Red Dog Mine will secure its position as the largest zinc mine in the world. He echoed Mr. Horswill's testimony in regard to Red Dog having the largest zinc reserves in the world. MR. KEY pointed out that there is a cluster of four ore bodies located immediately around Red Dog. Furthermore, there is the Su-Lik, the original deposit, and the New Discovery, which holds 12 million tons of 20 percent zinc. Winter stopped the drilling, he noted, and in another month, efforts will continue to determine how large the New Discovery really is. The New Discovery is exciting because it is the first time that high- grade zinc has been found away from the main pit. However, the tough part of the New Discovery is that it is 2,000 feet deep. Mr. Key specified that those six ore bodies represent exploration of about 10,000 acres of land. Cominco and NANA jointly control over 200,000 acres of land with the same geology. Therefore, exploration of the area is just beginning. He informed everyone that about $4 million will be spent on exploration, and the exploration program will continue for several more years. In response to Senator Lincoln, Mr. Key specified that New Discovery is six miles from Red Dog and Su-Lik is about 13 miles from Red Dog. MR. KEY turned to the questions of what it will take to convert this to operations and to start generating the jobs so badly needed in Northwest Alaska. He said the answer is infrastructure. Cominco, with bonding help from the state and the political will of NANA, was able to put Red Dog in, and to make it work in adverse conditions. Red Dog is one of a kind. None of the six deposits match Red Dog in terms of grade or accessibility. He expressed the importance of noting that Red Dog has paid its own way and has been a benefit to NANA, the Northwest Arctic Borough, AIDEA and the state as it has generated jobs and revenue for each. He said a combination of infrastructure and new technology will be necessary in order to develop those six deposits. MR. KEY stated that the first infrastructure item that needs to be addressed in Northwest Alaska is power. He said the long-term answer is not continued duplication of five megawatt diesel generators, "which is what we use." He pointed out that the power demand in Northwest Alaska has not been great enough to justify a power plant. However, in order for the Red Dog District to develop into multiple operations, there has to be a stable, economic form of power. Although this region of Alaska is not known for its gas resources, [Cominco] has been working hard to develop shale gases in this region. He identified another solution for power as coal because 90 miles north of [Red Dog], in the Arctic reserve, are some of the best coal reserves in the world. Initially, it is estimated that [the Red Dog District's] power consumption in this area would be about 100 megawatts and would easily increase to 250 megawatts in ten years. MR. KEY identified the second requirement [necessary for development in Northwest Alaska] as the transportation system. He informed everyone that Cominco Alaska has been working since 1967 to develop a deep-water port at the DeLong Mountain Transportation System Facility, which would be referred to as the DeLong Mountain Terminal. He reviewed the capacity that it could handle and noted that it could be upgraded for the exportation of coal. The current barge loading terminal is inefficient and approaching capacity. Therefore, none of the other mines can be developed or brought on line until the port is addressed. Mr. Key also noted that there is a 54-mile road that connects the mine to the barge-loading terminal. Further development of the other zinc ore bodies or coal will require a transportation infrastructure, whether it be additional roads or a railroad. MR. KEY said the third requirement [necessary for development in Northwest Alaska] is that skilled people have to be available to operate the mines and the power plant. Although importing the [people with] skills to Northwest Alaska may be a solution, it is not the right solution to address the needs and unemployment in the area. In order to develop the skills, there must be top- quality education, properly funded technical schools and a university system providing the skills. [Red Dog] realizes that this isn't solely a state problem and thus currently sponsors nine full-time university scholarships. Additionally, there are six job-share participants in college, and this year there are 18 persons enrolled in the pre-apprenticeships at the Alaska Technical Center. These efforts are beneficial in regard to those employed at Red Dog. In regard to skilled workers, Red Dog has experienced an increase from 7 to 32 skilled shareholders over the last ten years. Furthermore, Red Dog's management staff has grown from 6 to 22, and total shareholder employment has increased from 156 to 231, which represents 60 percent of [Red Dog's] workforce. MR. KEY identified the last requirement [necessary for development in Northwest Alaska] as permitting. Presently, Alaskan industries' biggest concern is that the government is committed to blocking further resource development in this state, and it maintains primacy over two out of three of the prime areas of air, water and waste. He pointed out that state primacy allows decisions to be made at a state level, by individuals who understand local conditions and issues, and who respond to state leadership. Furthermore, industry, under state primacy, has a better chance to see regulators work with [other] regulators on their permits. Other benefits include timeliness and cost- effectiveness. MR. KEY asserted that the Environmental Protection Agency (EPA) has no flexibility in regard to water permits. The tools the state has are the following: mixing zones, reclassification, site-specific criteria and variances. However, Alaska, at present, does not have a certified water permitting program. He noted that AIDEA and the Alaska Department of Fish & Game (ADF&G) have worked hard to ensure that Red Dog receives proper consideration for its natural conditions whenever they do permit certification for EPA. Still, the final decisions remain with EPA. Mr. Key remarked, "Without the good work of AIDEA, to be quite honest, Red Dog would be a past mine instead of a developing mining district." MR. KEY pointed out that state guidelines and regulatory authority for waste are also important in that Alaska's reauthorization of its waste program could bring about simpler requirements. Specifically, simpler requirements could occur for monofill landfills and construction demolition waste landfills. Furthermore, Alaska's waste program would have the additional benefit of the ability to work with the local group concerning tailing impoundments and being exempted from things such as fees based on volume, which are tough on mining companies. In regard to air permitting, that is the only area in which the state has primacy or "at least we thought they did," he remarked. MR. KEY informed everyone that EPA has recently told the state it can no longer make air [quality] decisions, as it has for the last 18 years. The Governor and [AVEC, the Alaska Village Electric Cooperative, Inc.] have been fighting to maintain the state's rights and "we" are standing beside the state in federal court. He said: Ultimately, the state must have the right to determine ... best available control technology, increment consumptions, monitoring, modeling requirements and protocol. An air program regulated by an office in Seattle will mean the end of any significant resource development in Alaska, and Alaska would no longer be open for business. Number 1710 MR. KEY turned to the his vision of what the next ten to fifteen years could look like in Northwest Alaska. Currently, the Red Dog Mine is connected to the DeLong Mountain Transportation port, which has a barge-loading terminal. At present, ships are loaded three miles offshore. He informed everyone that the first change has been to construct a deep-water loading facility. The second requirement was the power plant, he noted; if powered with coal, it would require a transportation system. Therefore, the transportation system will have to connect to the port. He pointed out that [if these requirements are filled] the New Discovery [Mine] could be developed as a conventional mine. However, the Hilltop [Mine] would require new technology, which would allow [shipment] of straight zinc metal - the finished product, not zinc concentrate. The Su-Lik [Mine] is similar in that it could potentially produce zinc metal with new technology. MR. KEY noted that the new technology requires huge power consumption because each operation would require about 90 megawatts of power. The power plants would provide power to the facilities, but "they" would also look towards taking power and setting an initial grid, which would solve some of the power problems in villages and move toward eliminating the need for assisted power in Northwest Alaska. He specified that this area is going from one mine and a barge-loading terminal to five mines, services and a deep-water port. This area will move from successfully training and employing 500 people to over 2,000 people. Furthermore, the power grid will solve problems and provide reasonably priced power to [Northwest Alaska]. Mr. Key emphasized that this is the vision for the next ten to fifteen years, and "these are the things we need help with, to get there." He noted that there has been continued contact with Senators Murkowski and Stevens in regard to these plans and ideas; both senators have expressed great interest. He offered to answer any questions. Number 1951 SENATOR LINCOLN recalled a visit to Korea with the regional corporations, including NANA Regional Corporation. The Korean government and Korean industries were very interested in a coal mine in [the Red Dog District]. The only hesitation was in regard to getting the product to a deep-water port. She asked if there was another site being looked at, for a deep-water port. MR. KEY replied, "Certainly, I don't believe it would be North." He recalled discussions with those from the Arctic Slope and pointed out that [in that area] one would have to go about 11 miles offshore in order to be in deep enough water. Therefore, he guessed that perhaps they were referring to the area near Nome; otherwise he didn't know. AN UNIDENTIFIED SPEAKER said that the original study looked at Cape Safety on the south side of the Seward Peninsula for a year- round deep-water port. However, that would require over 700 miles of transportation to move the product to the deep-water site. She informed everyone that more recent studies have looked directly offshore of the Holst Mine (ph) (indisc.) resources and then continuing to evaluate the DeLong Mountain [Transportation] System in trying to utilize Red Dog. SENATOR LINCOLN asked if this was the coal mine that [Korea was interested in], which had a lower concentrate of moisture and could be burned more efficiently. MR. KEY indicated that Senator Lincoln was correct. REPRESENTATIVE PHILLIPS inquired as to how far one would have to go out [for a deep-water port], if "they" did tie into the DeLong Mountain [Transportation] System. MR. KEY explained, "This extension is 2,700 feet of conveyor, and then the actual dredge channel ... is about 10,000 feet long, the area that has to be dredged. It's going from zero to about 20 [feet] of depth in the dredge." He noted that currently the [U.S. Army] Corps of Engineers is permitting this, performing environmental studies this summer and checking the work that [Red Dog] has done. Therefore, it is anticipated that the Corps of Engineers will complete its work and have permits by June 2002. CO-CHAIR HUDSON thanked everyone. SENATOR LINCOLN noted her appreciation of seeing the "Made in Alaska" symbol as well as the number of employees in Alaska and the money that stays in the state. REPRESENTATIVE JOULE remarked that one of the issues [Alaska] grapples with is subsistence in regard to development. He said he believes this is an excellent model with respect to how development can be achieved and still take into account the issues that are important to the people who live in the area of the development CO-CHAIR HUDSON agreed with both Senator Lincoln and Representative Joule in that [the Red Dog Mine] has been an excellent project. He expressed the need for everyone to work together to see that it happens. ADJOURNMENT The joint meeting of the House Resources Standing Committee and the Senate Resources Standing Committee was adjourned at 1:35 p.m.
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