Legislature(1999 - 2000)
03/29/2000 12:55 PM Senate 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 MEMBERS PRESENT
Representative Bill Hudson, Co-Chair
Representative Carl Morgan
Representative Reggie Joule
HOUSE MEMBERS ABSENT
Representative Beverly Masek, Co-Chair
Representative John Cowdery, Vice Chair
Representative John Harris
Representative Ramona Barnes
Representative Jim Whitaker
Representative Mary Kapsner
OTHER HOUSE MEMBERS PRESENT
Representative Gene Therriault
Representative Gail Phillips
Representative John Davies
Representative Alan Austerman
Representative Eldon Mulder
SENATE MEMBERS PRESENT
Senator Rick Halford, Chairman
Senator Pete Kelly
Senator Georgianna Lincoln
SENATE MEMBERS ABSENT
Senator Robin Taylor, Vice Chairman
Senator Jerry Mackie
Senator Lyda Green
Senator Sean Parnell
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.
5660 B Street
Anchorage, AK
HELVI SANDVIK, President
NANA Development Corporation
1001 East Benson
Anchorage, AK
JOHN KEY, General Manger
Red Dog Operations
Cominco Alaska Incorporated
Red Dog Mine
P.O. Box 1230
Kotzebue, Alaska 99752
ACTION NARRATIVE
TAPE 00-26, SIDE A
Number 0001
CO-CHAIR HUDSON called the Joint House & Senate Resources Standing
Committee meeting to order at 12:55 p.m. Members present at the
call to order were Representatives Hudson, Joule, Therriault,
Phillips, Davies, Austerman and Mulder and Senators Halford, Pete
Kelly and Lincoln. Representative Morgan arrived as the meeting
was in progress.
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. This presentation is
entitled, APartnership for Prosperity.@ 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 Authority).
Mr. Horswill noted that Cominco is a little less than 100 years old
and is primarily focused on zinc. Cominco is the world=s largest
zinc mining company and Cominco has the world=s largest ore
reserves, which is really Red Dog. Cominco is the fourth largest
zinc refining company.
MR. HORSWILL turned to the primary product of Red Dog, zinc. He
noted that lead is also produced and there is silver in the ore.
He explained that the primary use of zinc is to protect steel from
rust. Furthermore, brass is a component of zinc. Mr. Horswill
pointed out that zinc is essential for human health as it is a
micronutrient. Zinc is a product of the future and consumption is
fairly widespread. Western Europe is the largest consumer of zinc.
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 that zinc holds fairly strong growth that is,
relatively speaking, tied to the growth of the world economy. For
instance, the zinc market trend, from 1980 to 1999 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
Third World countries catch 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. The second largest zinc mine
in the world is named Century; it is located in Australia. It is
yet to be seen whether Century will achieve its target of 500,000
tons of annual production. 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 that in the short term 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 and 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 to 3 percent, the amount of zinc
demand increase is rapid. Therefore, the additional production
from Century will be quickly absorbed. Additionally, many major
mines are close to the end of their life. Two such mines are owned
by Cominco: Polaris, located in the high Arctic, and Kimberly in
the Interior of British Columbia. Both of those mines will be
going off production by the year 2001/2002. He said that 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 of a mine is in the ore reserves in the ground, which
really determines 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, Mc Arthur 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. He informed everyone that Red Dog employs
around 380 to 400 people full-time and construction work increases
those figures. Cominco=s spending in the state amounts to about
$100 million. Therefore, he saw a significant impact as well as an
opportunity for growth. He pointed out that over time more of the
suppliers are located in Alaska and thus more capable of supplying
the necessary things. He then discussed AIDEA and noted that the
initial investment for the port was $265 million and Cominco
payments amounted to $125 million of which about $5 to $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 and allowed NANA to
benefit from the royalty stream as well as 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 has 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 to $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, AEarly 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. She
noted that recently 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 large fuel
storage capacity such that it would provide fuel delivery to some
of the villages located on rivers where the barges can=t
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 will need to
modified in the future; the benefit of that goes beyond Red Dog.
Therefore, she believes that the state will experience the benefit
of Red Dog for many years to come. From NANA=s perspective, Red
Dog has had a tremendous start that 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 as it is
dependent upon production. In 1999 NANA received about $6.5
million in royalty payments and 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, stated that would amount
to 4.5 percent.
Number 1140
JOHN KEY, General Manger, Red Dog Operations, 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 on 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 and 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 are a cluster of four ore bodies,
which are 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 and thus in another month efforts will continue in order
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 together 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 following questions: AWhat=s it going to take
to convert this to operations and what=s it going to take to start
generating the jobs so badly needed in Northwest Alaska?@ In a
word: infrastructure. He pointed out that Cominco, with bonding
help from the state and the political will of NANA, was able to put
Red Dog in and 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 to the state as it has
generated jobs and revenue for each. Therefore, he said that a
combination of infrastructure and new technology will be necessary
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, AThe continued
duplication of five megawatt diesel generators, which is what we
use, is not the long-term answer for power in Northwest Alaska.@
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 would be upgradeable 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. He also noted that
there is a 54 mile road, which connects the mine to the barge
loading terminal. Further development of the other zinc ore bodies
or coal will require transportation infrastructure whether it be
additional roads or a railroad.
MR. KEY moved on to the third requirement necessary for development
in Northwest Alaska, which is people. Skilled people have to be
available to operate the mines and the power plant. Although
importing the skills to Northwest Alaska may be a solution, it is
not the right solution for Northwest Alaska 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. Mr. Key said
that Red Dog realizes that this isn=t solely a state problem and
thus Red Dog 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 seven to
32 skilled shareholders over the last ten years. Furthermore, Red
Dog=s management staff has grown from six 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 Athe federal government, this a federal
government which we feel is committed to blocking further resource
development in this state, 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, issues and respond to
state leadership. Furthermore, industry, under state primacy, has
a better chance to see regulators work with regulators on their
permits. Other benefits include timeliness and cost effectiveness.
Mr. Key stated 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 variance. 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, AWithout
the good work of AIDEA, to be quite honest, Red Dog would be a past
mine instead of a developing mining district.@ He pointed out
that state guidelines and regulatory authority for waste is 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 Aat least we thought they did,@ he
remarked. He informed everyone that EPA has recently told the
state it can no longer make air 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 Awe@ are standing beside the state in federal court. He
said, AUltimately, 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 off shore. He informed everyone that the first change has
been to construct a deep water loading facility. The second
requirement was the power plant, which if powered with coal 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. He noted that the new technology requires huge power
consumption as each operation would require about 90 megawatts of
power. The power plants would provide power to the facilities, but
Athey@ 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; Athese 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 that Athey@ were looking for a deep water port.
MR. KEY replied, ACertainly, 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
off-shore 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
off-shore 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 Athey@ did tie into the DeLong
Mountain [Transportation] System.
MR. KEY explained, AThis 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 foot
of depth in the dredge.@ He noted that currently, the 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 their work
and have permits by June 2002.
CO-CHAIR HUDSON thanked everyone.
SENATOR LINCOLN noted her appreciation of seeing the AMade 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
There being no further business, the Joint House & Senate Resources
Committee meeting was adjourned at 1:35 p.m.
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