Legislature(2001 - 2002)
02/26/2002 12:10 PM Senate RES
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* first hearing in first committee of referral
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ALASKA STATE LEGISLATURE
JOINT MEETING
SENATE RESOURCES STANDING COMMITTEE
HOUSE RESOURCES STANDING COMMITTEE
February 26, 2002
12:10 p.m.
SENATE MEMBERS PRESENT
Senator John Torgerson, Chair
Senator Gary Wilken, Vice Chair
Senator Ben Stevens
Senator Robin Taylor
Senator Ben Stevens
Senator Georgianna Lincoln
SENATE MEMBERS ABSENT
Senator Rick Halford
Senator Kim Elton
HOUSE MEMBERS PRESENT
Representative Drew Scalzi, Co-Chair
Representative Beverly Masek, Co-Chair
Representative Hugh Fate, Vice Chair
Representative Joe Green
Representative Lisa McGuire
Representative Gary Stevens
Representative Mary Kapsner
Representative Beth Kerttula
HOUSE MEMBERS ABSENT
Representative Mike Chenault
OTHER LEGISLATORS PRESENT
Senator Lyman Hoffman
Senator Loren Leman
Representative Peggy Wilson
Representative Carl Moses
COMMITTEE CALENDAR
MINING INDUSTRY OVERVIEW
WITNESS REGISTER
Mr. Steve Borell
Alaska Miners Association
3305 Arctic Boulevard, Number 202
Anchorage, Alaska 99503
Mr. Tom Irwin
True North Property
Juneau, Alaska
Ms. Charlotte MacCay, Senior Administrator
Environmental and Regulatory Affairs
Red Dog Operations
Mr. Keith Marshall, General Manager
Greens Creek
Juneau, Alaska
Mr. Steve Dento
Usibelli Coal Mine
Healy, Alaska 99743
Mr. Karl Hanneman
Alaska Regional Manager
Teck-Pogo, Inc.
Mr. Don Artesinger, Vice President
Coeur Alaska
Kensington Mine Project
Mr. Bill Ellis
Alaska Earth Sciences, Inc.
Denali Block Project
Mr. Greg Johnson, Vice President
NovaGold Resources Inc.
Donlin Creek
ACTION NARRATIVE
TAPE 02-4, SIDE A [SENATE RES TAPE]
CHAIRMAN JOHN TORGERSON called the joint meeting of the Senate
Resources Standing Committee and the House Resources Standing
Committee to order at 12:10 p.m.
MINING INDUSTRY OVERVIEW
CHAIRMAN TORGERSON announced that members would hear the second
annual mining industry briefing.
MR. STEVE BORELL, Alaska Miners Association, said that low metal
prices have been the primary driving force for most of the mines
and exploration projects in the state. Many of the small family
mines have been idle due to low prices, especially for gold.
However, at the same time, there has been both new and expanded
interest in three exploration areas. First, platinum group
metals have received significant interest. One of them is the
Denali Highway Block Platinum Project. Another project north of
Nome, called Kougarok, is focusing on tantalum, a metal used
increasingly in electronic applications. He is aware of at least
three companies that are looking for diamonds in Alaska and
explained that most geologists say that diamonds don't grow in
Alaska, but that 50 years ago they hadn't found diamonds in the
Northwest Territories; however, by the year 2004 they are
projected to outstrip South Africa as the third-largest diamond
producer in the world.
CHAIRMAN TORGERSON thanked him for his comments.
MR. TOM IRWIN, True North Property, had a ten-minute PowerPoint
presentation describing the development of the Fort Knox project.
He said that 16 Alaskan companies worked on the access road and
11 Alaskan companies worked on the bridge, while 22 Alaskan
companies worked in their shop in Juneau. He said the project
continues to perform exceptionally well, moving 70,000 - 90,000
tons of ore per day, continuing to set daily and yearly records.
Last year they [processed] 411,000 ounces of gold, with an
exceptional safety and environmental record. He said they are
the number-one steady taxpayer in the Fairbanks North Star
Borough, at $3.7 million, and their employees add another $0.3
million. His company is working on finding more ore and will be
investing about $3 million this year for exploration. In
addition, they are looking at using their granite as a gravel
product.
SENATOR LINCOLN asked what percentage of their employees and
companies are Alaskan.
MR. IRWIN replied that they are at 91 percent local hire.
SENATOR LINCOLN asked if they are saving the topsoil for
reclamation.
MR. IRWIN said yes, they put it in a separate pile so it's
accessible.
CHAIRMAN TORGERSON thanked Mr. Irwin for his presentation.
MS. CHARLOTTE MacCAY, Senior Administrator for Environmental and
Regulatory Affairs, Red Dog Operations, said in July 2001,
Cominco Alaska Ltd. and Tech Resources merged, and so Red Dog is
now operated by Teck Cominco Alaska. The merger caused some
changes in the corporate structure, but there are not many
impacts at the operation-management level. Teck Cominco also
owns the Pogo project. She said their general manager, John Key
(ph), moved on to Minnesota to open up a new mine. His
replacement is Bob Jacko (ph), who has extensive experience with
Teck Cominco and arctic mines, including being general manager of
the Polaris Mine located north of Baffin Island.
MS. MacCAY said zinc and all metal prices have been down for
2001, with zinc averaging $0.35 per pound, a 29-percent decrease
over 2000 prices. This resulted in the loss of $13 million in
the fourth quarter of 2001. Their projected losses for 2002 will
be $30 million. There is some indication that prices should
begin to recover very late in 2002. The stockpiles are going
down, and the need for the metal should start bringing prices
back up.
MS. MacCAY reported that during the past couple of years, Teck
Cominco completed two projects increasing their recovery rate and
the quality of their product. They continue to have some ore
complexities that need to be addressed, since the ore changes in
different parts of the pit, but anticipate meeting their goal of
1.1 million tons of concentrate. In 2002 they will focus on
improving their current facilities to become the best in
production, safety, and environmental performance. Projects such
as the port modification to facilitate the direct loading of
vessels through dredging and creating a new port are under
reconsideration; finances associated with them are difficult to
find at this time.
MS. MacCAY said they are continuing to evaluate the development
of natural gas as a replacement for the diesel they use at Red
Dog, about 15 million gallons of diesel per year. They have
found methane within the shale around the deposit and believe
they can find enough of a deposit to replace the diesel fuel for
the powerhouse. They still have to evaluate whether that gas
will flow, and need a different kind of drilling test to
determine whether the gas will come out of the fracture in the
shale and be usable. If they can do that, there are some cost
benefits, although they are marginal. The biggest benefit is
environmental, cutting air emissions approximately in half.
MS. MacCAY noted that environmental activity in 2002 is expected
to continue in the form of studying and addressing dust impacts
along the road and at the port site. Studies have shown that the
berries in the area are safe for human consumption, but they
continue to work on dust containment, especially source
reduction, and will spend another $8 million - $10 million there.
She noted they had already spent $4 million in this area.
MS. MacCAY said Teck Cominco will be developing a revised
reclamation plan, since the mine has a long life and they want to
keep up with the times. They are working on getting the waste
permit that extends to the tailings impoundment. When Red Dog
was originally permitted, solid waste regulations were not in
place. She said:
Despite the economic hardships, Red Dog still remains
the world's largest zinc mine, with a life of at least
40 years. We are doing no exploration activity in 2002
at all. However, there is still a lot of potential in
the area, and as soon as the financial situation
improves, we anticipate exploration will pick back up.
MS. MacCAY said they are working to bring more and more NANA-
related businesses to work as support services at Red Dog. In
closing, she said:
Being "the world's largest zinc mine" is often quoted,
and it's a somewhat impressive phrase, but both Teck
Cominco and NANA believe that our commitment to the
local community and our successful partnership with the
Native corporation is an accomplishment that speaks
louder and has greater meaning.
12:25 p.m.
MR. KEITH MARSHALL, General Manager, Greens Creek Mine, showed an
operational and project overview. He said they had a record
production in 2001 of 650,000 tons: 12 percent zinc, 5 percent
lead, 22 percent silver, and 0.2 percent gold. They had record
low operating costs of $75 per ton and a loss of $3.7 million.
They were producing as well as they could, but the metal prices
impacted their revenues by $9.3 million, a 12-percent drop over
the year.
MR. MARSHALL said they increased production and had to increase
the capacity of their mill, a project that was finished in the
first quarter of this year and cost $6 million. They installed a
5-megawatt turbine because with more throughput, they needed more
power; that cost $5 million. One of the benefits of the turbine
is that they will reduce their overall noxious emissions from the
operation by 25 - 35 percent, 20 percent more than the
manufacturers predicted.
MR. MARSHALL said the final project for the year is their
tailings expansion of about 20 percent. He said they have a
total of $21 million in projects going on. In 2001 they
finalized their solid waste permit with the state, and they are
in the process of securing a $24-million reclamation bond. He
pointed out that Greens Creek has the smallest footprint of any
of the operating mines in Alaska. The company thinks that
reclamation is their responsibility and that the bond level is
correct. Mr. Marshall thanked members for the opportunity to
talk to them.
CHAIRMAN TORGERSON thanked him for coming and announced that
Steve Denton would give an overview for Usibelli Coal Mine.
MR. STEVE DENTON, General Manager, Usibelli Coal Mine, said he
wanted to talk a little about the regulatory and market
environments they are in. He showed the committee photos of
their operations. The preliminary drilling results of their new
Poker Flat lease indicate they wouldn't have to move a lot of
dirt to get to the coal. He praised the Division of Mining, Land
and Water for doing an excellent job with permitting and
regulation. They don't see "storm clouds on the horizon" in
terms of environmental regulation, but he "wakes up in a cold
sweat sometimes" about some things going at the federal level.
He said:
I hope the legislature would kind of keep an eye on
that and give DEC [Department of Environmental
Conservation] the support they need because, quite
frankly, they are going to be in some battles with the
federal regulators - try to protect their primacy as a
state agency, and their ability to govern and manage
the state's resources, in the way that's better for us
but not necessarily what's good for the rest of the
country. I think DEC is going to need some help here
in the future.
MR. DENTON said there were concerns lately about their export
market and remarked, "We have been here before." He said they
have been at the eleventh hour, shipping the last of the coal
from the existing contract, and don't have a continuation in
hand. He told members:
The simple fact is that coal prices right now are
taking another plunge. The Chinese are dumping coal on
the market right now. The prices are going down, and
we can't compete with that kind of a situation. We are
still talking with the Koreans, trying to get an
extension on the contract. We have four - five more
months of shipments remaining on existing contract.
MR. DENTON said it is a very challenging market at the moment;
prices are almost at their all-time low - $1.25 m/Btu - a price
that pretty much drove everyone out of business in 1999. Then
the price started going up when everyone dropped out. He said:
I want to put the export coal market and the domestic
market in a proper perspective. The United States
right now is a net importer of coal. I'm not sure
people are aware of that. We exported approximately
13.2 million tons of coal last year. Usibelli has
exported about 5 - 6 percent of that. So we are a big
part of the U.S. steam coal export market. That's not
to say that Usibelli is a big part of the coal
business. It's just that the export market for the
United States is very low.
By comparison, we imported 24.1 million tons, or about
11 millions more than we exported. The total U.S.
production is over 1 billion tons now. The message I
would like to leave with you, I guess, is the one
that's embodied in this other handout, and that is,
there is a good reason why the United States burns so
much coal: because we have a lot of it, and it's the
cheapest way to make electricity.
MR. DENTON showed a chart illustrating that point. He said that
the new intertie that Golden Valley is building runs right by
their property, and he said the legislature would hear more from
them in the future about promoting a power station that would
provide power for the entire Railbelt. He said this power would
work in the rural areas, also, delivering the power by wire. He
added, "It's clean, it's efficient and it will get you low-cost
energy."
SENATOR TAYLOR asked him about the Healy Clean Coal project.
MR. DENTON replied that they are mostly observers and that there
are a lot of hurdles still to come. The Trustees for Alaska have
submitted 27 pages of comments, and there are some very difficult
things to deal with from the standpoint of re-permitting the
project.
REPRESENTATIVE FATE asked if he was interested in any coal-bed
methane exploration.
MR. DENTON replied, "Yes, the coal that we have in the Healy area
is pretty low methane. I'm not sure what the potential for it
is."
MR. KARL HANNEMAN, Alaska Regional Manager, Teck-Pogo, Inc., said
the Pogo project expects to be the next major mine in Alaska.
Pogo is about 40 miles northeast of Delta Junction and has a gold
resource of 5.6 million ounces located on state land about 50
miles from existing infrastructure. The key issues for their
development are to ensure the integrity of the Good Pasture
River, which flows nearby, and the management and mitigation of
access to the project. Their joint-venture partners, Sumitomo,
discovered the deposit in 1994. Teck-Pogo negotiated and earned
a 40-percent share in 1997, and in 1999 they started underground
exploration of the deposit. They spent about $70 million on the
project, and they hope to build an underground mine of about
2,500 tons per day, approximately the same size as Greens Creek,
for $250 million in capital costs and with an annual production
of about 400,000 ounces a year or $125 million in revenue. He
said it would take 500 employees a couple of years to build the
mine, and they are projecting a 12-year mine life, based on
existing research.
MR. HANNEMAN reiterated that one of their key issues is
management of access. They have finalized their mill design and
are about to finish the feasibility study; they recently
resubmitted some documents to the agencies for their review and
are engaged in the EIS and permitting process with federal and
state agencies. He said that to make the project a reality, they
need the road and power line to be permitted; they need a
reasonable waste water discharge system to be permitted; they
need a stable tax policy in the context of the mandated borough
formation; they need a schedule that allows them to meet this
next winter's road season, so they can use the winter road; and
they need to pull all this together in the final feasibility
study to demonstrate the project economics.
CHAIRMAN TORGERSON asked what the status was of the road permit.
MR. HANNEMAN replied that they have not yet officially applied.
As part of the EIS process, they were asked to get a little
further into the alternative valuation process before they
actually made a permit application.
SENATOR TAYLOR asked if there was some interest in shipping the
bulk product into Fort Knox for processing.
MR. HANNEMAN replied that they had looked at that conceptually
earlier, but the ore types are quite different, and the milling
processes in terms of the grinding size and the retention time
needed to recover the gold are different. The economics of
hauling it that far are not good, so it's not something that they
think is viable.
CHAIRMAN TORGERSON quipped that they should wait a little while
and they'd have a railroad. He then thanked him for his
comments.
MR. DON ARTESINGER, Vice President, Coeur Alaska, said that Coeur
has been operating in Alaska since 1997, as a subsidiary of Coeur
d'Alene Mines [Corporation], working on the proposed
redevelopment of the Kensington project.
TAPE 02-4, SIDE B
MR. ARTESINGER pointed out on a map that an area 45 miles past
the end of the Juneau road system was known as the Juneau Gold
Belt, and at one time about seven mines operated in that area.
The Kensington operated off and on until 1935. He said the
project has been permitted twice in the past, but he has only
worked with the one site, which has many challenges including
high precipitation, some seismic activity, and avalanches. Most
important is the concern of how to deal with tailings
economically with low gold prices.
MR. ARTESINGER said the scenario is to build a 2.5-mile road from
the end of Glacier Highway, past a point where the property is
owned by Goldbelt Incorporated [Native corporation], with whom
they have a lease agreement. The existing road was just made an
R.S. 2477 last month and is now state public right-of-way, and it
is about 5.5 miles long. They would build a 6,500-foot tunnel
through to reach the (indisc), and instead of dealing with the
tailings on one side of the project, they would build a pipeline
and deposit them in Slate Lake, which is not an anadromous lake
and is about 70 feet deep. This would substantially lower the
cost of the tailings project, from $2.50 a ton to about $.30 a
ton. They would have a containment dam and go through a
reclamation process at the end that has environmental
enhancements.
MR. ARTESINGER said that aside from port facilities, the revised
footprint is much smaller and there is a much smaller power
requirement, reducing capital costs from about $211 million to
about $155 million. From the standpoint of local economics, this
project would take about two years to build and 325 construction
workers. Coeur has in place local-hire and training commitments,
both locally to Southeast as well as to the Native corporations,
with sustained employment of about 225 jobs or a payroll of $16
million per year. The tax base of the City and Borough of Juneau
would also benefit. This project has to be re-permitted for the
third time by the City and Borough of Juneau. This work is
ongoing now, and the company has $120 million already invested.
They will go ahead with the supplemental environmental impact
statement (EIS) to position this project for an investment
decision if gold prices, which have increased recently, can be
sustained in the neighborhood of above $320 an ounce. Now the
price is around $298.
SENATOR TAYLOR asked why the road hadn't been built out to
Cascade Point yet.
MR. ARTESINGER replied that the road had been permitted and
Goldbelt, the owner, holds the permits, but they haven't been
willing to make that kind of investment. Coeur hasn't either,
until they know the mine is ready to go forward.
CHAIRMAN TORGERSON thanked him and announced the Denali Highway
Block project would be presented by Bill Ellis of Alaska Earth
Sciences.
MR. BILL ELLIS, Alaska Earth Sciences, said he is a consultant
geologist and has explored this part of the state since the early
1990s. He said the Denali Block has become a very intriguing
platinum project. Platinum is now recognized as the green metal,
because of its unique catalytic properties and its importance in
the development of fuel cell technology. He said:
They truly have a unique position in the world economy,
and because of their industrial and environmental uses,
they will be the metal of the new millennium....
Prices of platinum have significantly increased in the
last year or so, and they are considerably higher than
gold.
Essentially, platinum group metals are very rare in the
world. Economic concentrations are only in a couple
dozen major deposits in the entire world. These occur
in a specific geologic environment that consists of
rocks that come directly from the mantle. The vast
majority of the world's platinum comes from southern
Africa at 68 percent, Russia at 12 percent, and only 8
percent from North America. So, it's coming from a
very unstable area, in my mind.
MR. ELLIS showed a picture of the Denali Block that is between
Anchorage and Fairbanks. In 1992 there were about 30 claims in
the area - approximately 175 square miles - and by 1999 there
were over 3,000 claims controlled by essentially three
exploration groups, the largest being M.A.N. Resources
[Northridge Exploration and Fort Knox are the other two].
Explaining his map to the committee, he said there are over 1,200
state-selected claims in the Denali Block.
MR. GREG JOHNSON, Vice President, NovaGold Resources Inc., said
they started up in 1998 and are a U.S.-based company focused in
Alaska. They believe Alaska is a great place to do exploration.
In 1999 they acquired the Alaska Gold Company, the historic
operating company that mined the Nome and Fairbanks goldfields
with bucket-lined dredges. They have been building the business,
making their money in the Seward Peninsula's Nome area, and are
now the largest producer of sand and gravel in Western Alaska,
shipping material down to the Aleutians and many villages up and
down the coast. They are enthusiastic that they are going to be
able to expand that business and want to become the major sand-
and-gravel suppliers for the whole Pacific Rim. They are very
excited about the port expansion project going on at Nome this
year. They are talking with the state about the next expansion
of that project.
MR. JOHNSON said they are very excited about their Donlin Creek
Project, having just picked it up in a joint venture with Placer
Dome, which has been working on the project for the last six
years. Because of the low gold price, Placer Dome had made the
strategic decision that they were going to focus their efforts on
their existing lines, cut back on their exploration, and "joint
venture out" their higher-risk projects.
MR. JOHNSON said NovaGold's strategy is to go in and focus on the
higher-grade, smaller operations, and they had tremendous success
last year. He showed the committee an overview photo of the
project. They are looking at a Fort Knox scale of around 400,000
ounces of gold per year. The grade is five times as high as at
Fort Knox, but it takes additional processing requiring more
infrastructure and energy. In addition, the area is remote,
since they are up the Kuskokwim River from Bethel and Akiak.
MR. JOHNSON explained that the land is owned by Calista
Corporation and that Kuskokwim Corporation owns the surface
rights. There is an existing winter-access road to the 42-
square-mile project. They are looking at three different access
routes, and the preferred route is on Calista land, although they
are working with the corporation's desires. He said:
The whole key with making this project happen is making
it synergize with what the long-term regional
development plans are for the region. The project
cannot fly 100 percent on its own in terms of the
infrastructure and everything that needs to come in for
roads and power. So, it has to fit in the longer-term
vision of what the region needs.
MR. JOHNSON reported that the total lower-grade resource is now
almost 23 million ounces and that there is 10.6 million ounces of
the higher grade, with a production rate of 400 ounces per year.
Construction costs for a smaller-scale project, focused on high-
grade ore, are a $300-million to $500-million investment.
Operating costs would be $50 million to $80 million per year,
with 500 to 600 full-time employees. There could be 25 or more
years of production, with the opportunity for discovery of
additional deposits being very high. The project is supported by
Calista and Kuskokwim, whose shareholders are hired - 75 percent
local hire this year. They have almost no turnover so far and
have a great workforce.
MR. JOHNSON said the project has significant challenges and
requires creative engineering. They are working with a group
called MRDI, located in Vancouver, British Columbia, that has
done a lot of the engineering work at Red Dog Pogo and has put 40
other mines in production in the Arctic. Working with their
partner, Placer Dome, they are trying to come up with a creative
solution that makes this project move forward. In 2001 they
completed 24,000 feet of core drilling costing $3 million,
bringing the total investment in the project so far to $40
million.
MR. JOHNSON said NovaGold has completed the resource estimate and
is working on an economic scoping study. They are setting up a
campus this week and plan to begin a $7-million program to do
additional drilling to define the resource and get a better
handle on total size and grade of the system. They are going to
try to do some test mining this year and to continue
environmental and baseline studies that they started with Placer
Dome, as well as metallurgy testing and engineering design. He
said they have six years of baseline work already and hope to
begin the feasibility study sometime in 2002 or 2003, and begin
final permitting in 2003 or 2004. They are hoping, with a rising
gold price, for a 2005 project.
SENATOR WILKEN asked if this was open-pit or belowground mining,
and where they would get the power for that size of a mine.
MR. JOHNSON replied that they would start out open-pit, but long-
term there is a lot very high-grade material, so they would go
underground. It would be very much a Fort Knox-scale operation.
Their operation is looking at starting small, at 8,000 tons per
day, and scaling up to 20,000 tons per day to get the high grade.
With that concept in mind, they would start with local power
generation onsite or in Cripple Creek. This would be the start
of a regional power grid, potentially with the mine being the
main starting customer. As they scale up, they would have to
generate additional power. About 25 megawatts would be required
in the beginning, and within three to ten years they would scale
up to 50 - 75 megawatts.
SENATOR WILKEN asked what energy would be used.
MR. JOHNSON said they are looking at all the options, but right
now they are leaning towards onsite diesel. They are open to
possibilities.
CHAIRMAN TORGERSON thanked them all for coming down and said this
meeting had been very informative.
ADJOURNMENT
There being no further business before the committees, the joint
meeting of the Senate Resources Standing Committee and the House
Resources Standing Committee was adjourned at 1:22 p.m.
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