Legislature(1999 - 2000)
03/29/2000 12:55 PM House RES
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* first hearing in first committee of referral
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+ 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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