Legislature(2013 - 2014)BUTROVICH 205
02/05/2014 12:00 PM Senate RESOURCES
| Audio | Topic |
|---|---|
| Start | |
| Annual Mining Industry Overview | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | TELECONFERENCED | ||
ALASKA STATE LEGISLATURE
JOINT MEETING
SENATE RESOURCES STANDING COMMITTEE
HOUSE RESOURCES STANDING COMMITTEE
February 5, 2014
12:01 p.m.
MEMBERS PRESENT
SENATE RESOURCES
Senator Cathy Giessel, Chair
Senator Fred Dyson, Vice-Chair
Senator Click Bishop
Senator Lesil McGuire
Senator Anna Fairclough
Senator Hollis French
HOUSE RESOURCES
Representative Eric Feige, Co-Chair
Representative Dan Saddler, Co-Chair
Representative Peggy Wilson, Vice-Chair
Representative Geran Tarr
MEMBERS ABSENT
SENATE RESOURCES
Senator Peter Micciche
HOUSE RESOURCES
Representative Mike Hawker
Representative Craig Johnson
Representative Kurt Olson
Representative Paul Seaton
Representative Scott Kawasaki
COMMITTEE CALENDAR
ANNUAL MINING INDUSTRY OVERVIEW
- HEARD
PREVIOUS COMMITTEE ACTION
No previous action to record
WITNESS REGISTER
KAREN MATTHIAS, Executive Director
Council of Alaska Producers
Anchorage, Alaska
POSITION STATEMENT: Provided an overview of Alaska's mining
industry.
DEANTHA CROCKET, Executive Director
Alaska Miners Association
Anchorage, Alaska
POSITION STATEMENT: Provided an overview of Alaska's mining
industry.
ACTION NARRATIVE
12:01:00 PM
CHAIR CATHY GIESSEL called the joint committee meeting of the
Senate and House Resources Standing Committees to order at 12:01
p.m. Senators present at the call to order were Senators
Fairclough, Vice-Chair Dyson, and Chair Giessel. Representatives
present at the call to order were Representatives Tarr, Vice-
Chair Wilson, and Co-Chair Feige.
^ANNUAL MINING INDUSTRY OVERVIEW
ANNUAL MINING INDUSTRY OVERIVEW
12:01:49 PM
CHAIR GIESSEL announced that the joint committee meeting's only
order of business would be the annual Mining Industry Overview.
12:02:25 PM
KAREN MATTHIAS, Executive Director, Council of Alaska Producers
(CAP), Anchorage, Alaska, explained that CAP is a statewide,
nonprofit trade association for the large metal mines and
advanced projects in Alaska.
12:02:41 PM
DEANTHA CROCKETT, Executive Director, Alaska Miners Association
(AMA), Anchorage, Alaska, stated that AMA has been around since
1939. She explained that AMA is the umbrella-association for the
mining industry and represents the hard-rock mines and projects
in the state: coal projects, placer miners, contractors, and
businesses that work with the mining industry.
MS. CROCKETT referred to a PowerPoint presentation [Slide 2,
"Why Do We Mine?"] She referred to her smartphone as an example
of the reason for mining. She pointed out that a smartphone
contains five raw materials that are found in Alaska: platinum,
aluminum, copper, gold, and silver. She noted that gold and
silver are actively mined in Alaska.
[Slide 3, "Why Do We Mine?"] She noted that minerals are an
important point in the recreation of our lives as well. She
explained that minerals are literally in every form of
transportation mode used.
12:04:09 PM
[Slide 4, "Why Do We Mine?"] She pointed out that minerals are
used in products that one hopes that they do not have to use.
She noted that zinc is used to galvanize roadside guardrails.
She disclosed that Alaska has one of the world's largest zinc
mines at the Red Dog Mine (RDM). She called attention to metals
used in lifesaving applications: gold in automobile airbags and
silver in the lining of heart valves.
[Slide 5, "Wind Turbine."] She said metals are used in renewable
and affordable energy solutions. She noted that the Fire Island
Wind Project near Anchorage is a local example of metals being
used in wind turbines for renewable energy.
She stated that minerals are a very important part of our life.
She asserted that no matter what an individual's political
affiliation, a disconnection persists between the metals used on
a daily basis and the act of mining itself.
12:04:51 PM
SENATOR BISHOP joined joint committee meeting.
[Slide 6, "Alaska has a World-Class Permitting System."] Ms.
Crockett said Alaska does have a world-class permitting system.
She remarked that minerals are needed and AMA knows that mining
can be done and is being done right in Alaska.
VICE-CHAIR DYSON asked Ms. Crockett to confirm that she clearly
inferred that Alaska's permitting system is a good one.
MS. CROCKETT answered yes.
SENATOR DYSON asked if Alaska's permitting system is one of the
best.
MS. CROCKETT replied yes. She asserted that Alaska is a world-
class system.
VICE-CHAIR DYSON asked how Alaska attained the world-class
permitting level. He remarked that Alaska was generally not that
good with permitting.
MS. CROCKETT replied that she has seen a very concentrated
effort by Alaska's lawmakers to make all resource industries
operate to the very best they can and noted that a track record
has been exhibited over several decades.
VICE-CHAIR DYSON commented that legislators probably do not
deserve the major part of the credit. He noted that credit lies
with agencies in addition to enthusiastic support from most
Alaskans. He called attention to aluminum and asked why he had
never seen the metal listed as a state asset.
12:06:29 PM
MS. CROCKETT replied that aluminum is found in Alaska, but no
projects were being pursued.
VICE-CHAIR DYSON asked how much aluminum exists and where it is
located.
MS. CROCKETT replied that she does not know how much aluminum
exists and noted that the metal deposits are not concentrated in
a geographic area.
She continued that the permitting process has been a
collaborative effort for several decades between lawmakers, the
administration, and the industry. She set forth that improving
the permitting process continues as technology advances.
[Slide 7, "Mining Day at the Fair."] She explained that CAP and
AMA strive to bring the mining-reality to the general public.
She pointed out that CAP and AMA reach out to children through
the Alaska Resource Education Program and the Mining Day
sponsorship at the Fairbanks and Palmer fairs. She explained
that AMA's intent at the fairs is to talk to children and show
them how they use minerals on a daily basis. She said AMA's
concerted effort is to make sure that children know that there
is an understanding about the vigor of the mining system and
what it really means to mine in Alaska.
MS. MATTHIAS pointed out Alaska's mining facts and challenges as
follows:
1. Alaska has rich resources,
2. Alaska has a rigorous permitting system that ensures mining
is done right, and
3. Alaska faces challenges due to a lack of infrastructure to
remote locations, high costs, and volatile metal market
prices.
12:08:24 PM
SENATOR MCGUIRE joined the meeting.
[Slide 8, "Mining Activity in Alaska."] Ms. MATTHIAS announced
that she will provide an overview for Alaska's six producing
mines and 300 small placer-mine operations.
12:09:00 PM
SENATOR FRENCH joined the meeting.
[Slide 9, "Red Dog Mine (RDM)-Northwest Alaska."] Ms. Matthias
pointed out that modern metal mining in Alaska is a very young
industry. She noted that the oldest of the five metal mines is
RDM which started production in 1989. She noted that Alaska's
metal mines were all permitted after the National Environmental
Policy Act (NEPA) came into effect in 1970. The five metal mines
were permitted under a very modern regulatory system.
She detailed RDM as follows:
· Located in Northwest Alaska near Kotzebue on NANA Regional
Corporation land;
· One of the largest zinc mines in the world;
· Employs 639, 56 percent are NANA shareholders;
· No major road system: zinc concentrate, supplies, and
people are transported by sea or air.
She detailed RDM's 2013 operational activities as follows:
· Three month opportunity-window for shipping concentrate
when the port is ice-free;
· Loaded 253 barges that filled 24 ships with concentrate;
· Received 20 million gallons of diesel fuel, 4 container
ships with 2,500+ containers plus equipment.
She noted that nothing is shipped or is received until the
Subsistence Committee gives its approval.
CHAIR GIESSEL asked what role the Subsistence Committee plays.
MS. MATTHIAS replied that the Subsistence Committee has been an
integral part of RDM operations. She explained that the
Subsistence Committee offices are located at RDM to ensure that
subsistence needs are understood and taken into account.
12:11:27 PM
[Slide 11, "Usibelli Coal Mine (UCM)-Healy."] She said UCM is
Alaska's only operating coal mine. She provided UCM production
details as follows:
· Produces 2 million tons of coal per year,
· 50 percent of the production is exported and 50 percent is
used in-state, and
· 30 percent of UCM's coal fuels Interior Alaska's
electricity.
VICE-CHAIR DYSON asserted that Alaska has world-class coal
reserves. He commented that nationally, a significant negative
reaction to coal exists as both a fuel source and a resource. He
noted that attention is not given to clean-coal plant
development. He pointed out that the majority of UCM's coal that
is shipped out of the state goes to overseas markets where a
huge demand exists. He asked for a comment on the international
coal market and what the Legislature can do to help the coal
industry.
12:12:25 PM
CO-CHAIR SADDLER joined the meeting.
MS. CROCKETT voiced that the U.S. federal government has not
done a very good job of trying to provide affordable coal to
U.S. citizens. She said there are nations that do want to burn
coal and provide affordable energy to their citizens. She stated
that she is happy that there are other global sources that do
want UCM's coal.
VICE-CHAIR DYSON addressed the Canadian coal mining industry and
asked what the Canadians have done with natural resource
extraction tax benefits that make investment in Canadian mining
so attractive.
12:14:44 PM
MS. MATTHIAS responded that like the U.S., Canada is a federal
government system and natural resources come under the
responsibility of the provinces. She explained that like Alaska
in managing its resources, Canadian provinces are able to offer
tax incentives and other mechanisms to encourage or discourage
development. She added that at the federal level, Canada used to
have an extremely high corporate income tax and over the last 10
or 15 years it has gone down significantly. She pointed out that
in 2013, Canada's corporate income tax was at 15 percent, a
level that provided a real incentive for companies looking at
Canadian investments. She noted that Canada also has had various
tax incentives including flow-through shares for exploration
incentives. She divulged that Canadian tax incentives have
changed in the last 18 months due partly to federal budget
deficit reduction.
12:16:19 PM
VICE-CHAIR DYSON noted that flow-through shares allows mine
development expenses to flow-through as a tax benefit for
investors and the end result has been a huge boon to Canadian
investment.
MS. MATTHIAS answered yes. She noted that the flow-through
benefit system has changed over the last 18 months.
[Slide 12, "Fort Knox Mine (FKM)-Fairbanks."] She said FKM is a
surface gold mine that has beneficial attributes as follows:
· Located on the road network,
· Accesses the power grid,
· Located just outside of Fairbanks which allows employees to
drive to and from work every day,
· 100 percent of FKM's 630 employees live in the Fairbanks
North Star Borough (FNSB),
· FKM is FNSB's largest property tax payer,
· FKM employees buy houses, pay property taxes, and supports
local businesses, and
· FKM poured their 6 millionth ounce of gold since operations
commenced in 1996.
She noted that FKM faces energy cost challenges where 2012
monthly bills for electricity and diesel fuel averaged $4
million each.
12:18:31 PM
[Slide 13, "Pogo Mine-Fairbanks (PGM)-Delta Junction."] She
explained PGM as follows:
· Underground gold mine,
· Employs 320 employees plus contractors, and
· Produced 314,000 ounces of gold in 2013.
MS. MATTHIAS revealed that PGM makes a real effort to buy
locally. She noted that PGM spent $127 million with almost 300
Alaska vendors and contractors in 2012.
12:19:14 PM
[Slide 14, "Greens Creek Mine (GCM)-Juneau."] She explained GCM
as follows:
· Underground polymetallic mine;
· Produces silver, zinc, lead, and gold;
· One of the world's top ten silver producers;
· 400 employees; and
· Has access to "interruptible rate" hydro-electric power
from Juneau.
She noted that GCM had a milestone in 2014 where the U.S. Forest
Service issued a Record of Decision that was upheld through the
federal appeals process for their tailings facility expansion.
She added that local, state, and federal level permits must be
obtained prior to GCM's tailings facility expansion.
[Slide 15, "Kensington Gold Mine (KGM)-Juneau."] She explained
KGM as follows:
· Underground gold mine,
· Employs over 300 employees,
· Relies entirely on diesel fuel.
She revealed that GCM and KGM are the largest private sector
employers and property tax payers in Juneau.
She called attention to the fact that fuel costs are a huge
expense for all mines. She stated that mining projects are
looking at every power option to be more efficient and reduce
their production costs.
12:21:00 PM
[Slide 16, "Upper Kobuk Mineral Projects (UKMP)-Northwest
Alaska."] Ms. Crockett announced that she will provide a rundown
on some of the state's advanced exploration projects. She said
UKMP is situated on NANA land in the Ambler Mining District
(AMD). She noted that AMD is primarily a copper district with
exploration occurring for over four decades. She said renewed
AMD drilling commenced in 2004. In 2013, UKMP had 80 employees
on site with 53 percent NANA shareholder hires.
[Slide 17, "Livengood Gold Project-Fairbanks (LGP)."] Ms.
Crockett explained that the LGP deposit was originally a placer
mining operation for gold that transitioned to a large mining
project when the load was discovered in 2003. She noted that a
2013 feasibility study by International Tower Hill Mines
revealed that some LGP operational costs were quite high and
efficiency options continue to be reviewed. She noted that 450
new jobs to the Fairbanks area would be created if LGP came on-
line.
[Slide 18, "Wishbone Hill Coal Mine (WHCM)-Palmer."] She said
WHCM is a coal project being pursued by the Usibelli Coal Mine
Corporation. She detailed that WHCM is in a historic coal mining
district that was initially mined in 1916. She informed the
joint committee that WHCM has been halted for the past two years
due to an injunction. She said when WHCM comes on-line, up to
125 jobs will be created for Mat-Su Borough residents.
[Slide 19, "Donlin Gold Mine (DGM)-Kuskokwim." She explained
that DGM has been in exploration since 1998 and permits were
initiated in late 2012. She noted that DGM's camp region has up
to a 90 percent Calista Corporation hire rate. She informed the
joint committee that 1400 jobs are expected when DGM comes on-
line. She added that DGM is looking at powering the project
through a 313 mile gas pipeline from Cook Inlet. She explained
that DGM's pipeline would provide cheaper energy to keep
operating costs down and provide a legacy infrastructure that a
mining project can bring to a region. She noted that Juneau is a
community that has benefited from hydropower due to mining. She
said AMA is hopeful that the DGM pipeline branches into other
areas of the state where other energy sources are used.
12:23:30 PM
CHAIR GIESSEL noted that DGM was recently named National
Employer of the Year in 2013.
MS. CROCKETT confirmed that DGM was named the 2013 National
Employer of the Year [by the National Association of State
Workforce Agencies.] She called attention to DGM's efforts to
get to the 90 percent Calista shareholder participation level
and try to get people within the region to be employed at their
camp.
[Slide 20, "Pebble Mining Project (PMP)-Southwest Alaska."] Ms.
Crockett said PMP is a copper, gold, and molybdenum project that
was discovered in 1987 on State of Alaska land. She revealed to
the joint committee that over $150 million has been spent on
environmental studies since 2002. She detailed that PMP can
provide 1000 potential jobs for the region.
[Slide 21, "Chuitna Coal Project (CCP)-Southcentral Alaska."]
She said CCP is in the permitting process with a decision
expected in late 2014, early 2015. She detailed that CCP has the
potential to bring 350 jobs to the West Cook Inlet Region.
[Slide 22, "Niblack Mine Project (NMP)-Prince of Wales Island."]
She said NMP was a polymetallic deposit where copper, gold,
silver, and zinc would be mined. She explained that NMP
exploration has been happening for over 30 years and was ramped
up in 2009. She revealed that NMP has the potential to bring 200
jobs to the Ketchikan-Prince of Wales area.
[Slide 23, "Bokan-Dotson Ridge Project (BDRP)-Prince of Wales."]
She said BDRP is a rare earth element (REE) deposit on Prince of
Wales Island. She explained that REEs are things that make cell
phones vibrate or show the red in plasma TVs. She asserted that
REE mining is of national interest and noted that the U.S. is
nearly 100 percent reliant on foreign sources.
12:25:22 PM
VICE-CHAIR DYSON asked if the federal government is doing
anything materially to incentivize REE mining in North America.
MS. CROCKETT replied that AMA's delegation has sponsored bills
to build roads from Prince of Wales communities to BDRP and NMP.
She noted that a critical minerals bill was currently before
Congress to make federal permitting easier.
VICE-CHAIR DYSON responded that there is always hope that the
federal government would be very actively seeking REE that are
needed to support the country's lifestyle. He asked if the
federal government was working towards REE self-sufficiency.
MS. CROCKETT answered no. She said she was not aware of a REE
self-sufficiency plan.
CHAIR GIESSEL noted a recent committee meeting where Fairbanks
was being considered as a location for F-35 Fighter squadrons.
She pointed out that the advanced technology used in the F-35
depend on REE.
MS. CROCKETT replied that the U.S. Department of Defense is a
huge REE consumer. She said she hopes that the federal
government looks kindly upon having a domestic REE source and
that Alaska has an opportunity to be one of the domestic
sources.
12:27:19 PM
She called attention to BDRP and noted that the project has the
potential to bring 190 jobs to the Prince of Wales region.
SENATOR FAIRCLOUGH asked if an analysis was made on the types of
REEs that possibly could be extracted from BDRP.
MS. CROCKETT replied that light and heavy REEs are found at
BDRP. She noted that she will provide the joint committee with
an REE list at BDRP.
VICE-CHAIR WILSON noted that a certain mine was converting to
natural gas to power its generators. She explained that the
technology used at the mine could be used on a smaller scale for
homeowners.
12:30:14 PM
MS. CROCKETT commented that the example provided by Vice-Chair
Wilson highlights another benefit from mining.
SENATOR MCGUIRE added that BDRP is considering liquefied natural
gas (LNG) deliveries from WesPac Midstream LLC that could lead
to partnering with other Alaska coastal communities. She pointed
out the connectivity between resources and noted that many
mining opportunities in Alaska get shutout due to diesel's high
energy costs.
[Slide 24, "300+ Placer Mines."] Ms. Crockett informed the joint
committee that placer mining is a traditional method of mining
done without blasting or chemical processing. She explained that
placer mining is done by moving dirt and using water to separate
the gold. She noted that 100,000 ounces of gold were mined by
approximately 300 placer miners in 2013. She said the impact
from placer mining may be more on the individual and the family
level, but very important none then less.
[Slide 25, "No Single Permit to Mine: there are many permits and
authorizations."] Ms. Matthias asserted that environmental
responsibility is the priority that underlines economic impact.
She said as Alaskans, mining has to be done right with an
expectation for rigorous, consistent, and transparent oversight.
She stated that every mining company operating in Alaska knows
that it needs to act responsibly in order to earn community
support for mining activity.
12:32:38 PM
MS. MATTHIAS stated that she will address the regulatory system.
CO-CHAIR FEIGE asserted that water quality permitting tends to
be a major point of contention. He noted that Alaska's large
mines have been permitted under the NEPA process. He asked what
the water quality has been down-drainage from the large mines.
MS. MATTHIAS replied that Alaska's five metal mines are
operating very responsibly with strict operations oversight. She
revealed that the creek system prior to RDGM operations did not
sustain fish and the current treated water discharge supports
aquatic life.
She noted that FKM is in an historic placer-mining district
where a lot of water disturbance resulted in Fish Creek not
being viable to support aquatic life. She pointed out that
although not required, FKM took it upon itself to work with the
Department of Fish and Game to restore the wetlands around Fish
Creek in a multi-year process. She informed the joint committee
that Fish Creek currently supports aquatic life that was not
present prior to FKM operations.
12:35:43 PM
VICE-CHAIR DYSON noted that regulatory issues have occurred
where a natural stream's water quality was far from meeting the
standards prior to a mining site and water treatment after a
mine was in operation improved a stream's standards, but the
federal government acted negatively when the stream's output did
not meet standards. He asked for a clarification on the federal
government's actual standards for water quality.
MS. MATTHIAS replied that speaking in generalities about water
quality is difficult because every mine's permits are designed
specifically to look at individual geography, geology, and the
mine plan itself. She assured the joint committee that the water
quality standards are extremely high and that is the reason why
the permitting process is so intense. She explained that the
permitting process for a large mine occurs on the local, state,
and federal levels. She added that there are opportunities for
public comment and stakeholder engagement. She commented that
the permitting process should be the regulators working on the
data and making decisions based on good science with regulation
consistently applied to applicants from the mining industry.
12:38:13 PM
VICE-CHAIR DYSON noted that Ms. Matthias did not indicate that
the regulatory process is working the way it should. He asked if
the federal government regulated with discretion to take into
account bad quality upstream water in order to make fair and
rational decisions.
MS. MATTHIAS replied that she honestly does not have the
technical background to get into real specifics about the water
quality and the permitting process. She offered that additional
information will be provided to the joint committee.
VICE-CHAIR DYSON responded that he does not want a detailed
answer. He asked if the process is working so that an operator
can get permits when bad quality exists initially and a mine's
water output improves the natural water's quality, but the water
fails to meet arbitrary standards. He surmised that RDM is an
example of an operation that is meeting water quality standards
by improving a stream with its water output.
MS. MATTHIAS answered that Alaska has five operating mines that
have their permits and are operating responsibly on state and
federal levels. She noted that DGM was currently going through
the water quality permitting process.
VICE-CHAIR DYSON asked for permitting specifics to be presented
off-line.
[Slide 26, "Responsible Closure."] Ms. Matthias said that
rigorous oversight doesn't stop once a mine goes into
production. She explained that long before a mine actually
starts production, a Reclamation Plan is approved by the
Commissioner of Natural Resources. She detailed that the
Reclamation Plan also requires a company to provide financial
assurance that money is available to the state if it needs to
step in to take care of reclamation and closure. Financial
assurance is assessed at the beginning of the project and
reassessed every five years or whenever there is a significant
change. She pointing out that the laws for responsible closure
apply equally to U.S. and non-U.S. companies.
12:40:54 PM
[Slide 27, "Alaska's Mining Activity in 2013."] Ms. Crockett
explained that AMA commissions the McDowell Group to produce an
annual report called the Economic Benefits of Alaska's Mining
Industry. She highlighted Alaska's 2013 mining activity as
follows:
· $180 million exploration expenditures,
· $350 million development expenditures,
· $3.4 billion in gross mineral production, and
· 300+ placer-mines.
She specified that in 2013, nearly $500 million was spent on
exploration and development in Alaska. She noted an important
point is that exploration money is often spent on local and
state-owned family-run businesses.
12:42:05 PM
[Slide 28, "Employment and Payroll."] She said the mining
industry believes providing jobs is one of the most important
things that the industry brings to the state. She shared 2013
Alaska mining employment data as follows:
· 4600 people were employed in Alaska's mines;
· Mining jobs provide stable, year-round employment;
· Average annual mining wage is $100,000; and
· Many mining jobs occur in rural areas that do not have
other economic opportunities.
[Slide 29, "Benefits to Alaska Native Corporations."] She said
the benefits to the Alaska Native corporations goes to both
village and regional corporations. She informed the joint
committee that at 25 years of RDM, NANA surpassed the $1 billion
royalty revenue mark in 2013 with 60 percent of the royalty
distributed to other village and regional corporations. She
asserted that mining truly does touch every corner of Alaska.
[Slide 30, "Payments to Local Governments."] She stated that
mines are the largest property tax payers in the Northwest
Arctic Borough, the Fairbanks North Star Borough, and the City
and Borough of Juneau. She added that the mines are very
important contributors to the Denali Borough and the City of
Nome. She noted that RDM is the only taxpayer in the Northwest
Arctic Borough. She summarized that mining helps pay for the
essential things that Alaskan municipalities rely on most such
as roads, ambulances, and school funding.
[Slide 31, "Payments to State Government."] Ms. Crockett
disclosed to the joint committee that in addition to the taxes
and royalties paid, mining brings significant revenues to the
Alaska Railroad, AIDEA through the DeLong Mountain
Transportation System for RDM's port shipments, Skagway Ore
Terminal, and the Alaska Mental Health Trust Authority (AMHTA).
VICE-CHAIR DYSON asked for an explanation on AMHTA.
MS. CROCKETT replied that AMHTA is a state corporation that is
provided land in order to fund mental health programs. She noted
that there are many projects outside of mining that occur on
AMHTA land that funds mental health programs in Alaska.
12:44:27 PM
MS. MATTHIAS stated that mining is a global industry and market
conditions had a negative impact in 2013. She explained that
mining is a global industry as follows:
1. The mining product pricing is dictated by global markets
and has nothing to do with the cost of production.
2. The very large exploration and mine development costs
require a company to have a very large investment base
which tends to involve multi-nationals and global players.
She said PricewaterhouseCoopers' annual Mining Sector Report
divulged that in 2012, the top 40 mining companies saw their
profits plunge 49 percent with market capitalization declining
21 percent. She pointed out that 5 out of the top 10 mining CEOs
lost their jobs. She added that smaller mining companies' access
to investment capital is very tight when commodity prices are
down.
12:46:01 PM
[Slide 32, "Monthly Copper Prices 2004-2013."] She informed the
joint committee that copper acted as a bellwether commodity due
to its use in electronics and wiring. She explained that
copper's demand and pricing goes up when the economy is doing
well due to housing construction, automobile purchases, and
infrastructure investment. She noted that copper prices are also
impacted by investors who consider where they "think" the
economy is going. She said macro-economic uncertainty can
depress prices even when demand for copper is high. She
referenced Slide-32 regarding copper's bellwether tendencies
when the economic downturn occurred in 2008. She added that
copper pricing increased over a couple of years during the
recovery and recently dipped down again.
[Slide 33, "Monthly Base Zinc and Lead Prices 2004-2013."] Ms.
Matthias explained that zinc and lead prices are also fueled by
industrial demand and more generally by the global economy. She
noted that China buys about 40 percent of the world's metals.
She added that the recent decline in base metal prices is
attributed to China's slowed growth over the past few years.
[Slide 34, "Monthly Gold and Silver Prices 2004-2013."] She said
precious metals pricing has been volatile over the past ten
years. She noted that volatile commodity pricing makes it
difficult to raise investment dollars for projects that may not
come on-line for 5, 10, or 15 years.
12:48:16 PM
[Slide 35, "Operating Costs Keep Rising, 2003-2013."] She set
forth that the one thing the mining industry does not have any
trouble predicting is that operation costs go up. She explained
that mining's rising operating costs include a lot of fixed
operating costs such as fuel, equipment, tires, and employee
salary increases. She summarized that mining's production costs
continue to go up, but the amount that the company can earn for
the commodity it is selling is entirely dependent on volatile
global markets.
12:48:55 PM
[Slide 36, "2012 Exploration Spending by Region."] She set forth
that Alaska exploration projects need to compete for global
dollars with projects all over the world. She noted that mining
requires high upfront expenditures with high financial risk. She
pointed out that investors pull back when commodity prices are
low and invest more when commodity prices are high. She informed
the joint committee that the U.S. attracted 8 percent of the
global exploration spending in 2012 versus 20 percent in the
early 1990s. She specified that the U.S. Geological Survey
(USGS) reported that Alaska gets about 13 percent of the
exploration spending that comes into the U.S.
[Slide 37, "Exploration Spending Declines."] She revealed that
exploration spending has declined globally as a result of lower
commodity prices. She pointed out that U.S. and Alaska
exploration spending has declined at a higher rate than the
global average.
12:50:11 PM
VICE-CHAIR WILSON asked if the federal government's stringent
environmental policies are negatively impacting mining
exploration.
MS. MATTHIAS replied that any industry, including mining, wants
certainty in the regulatory process. She asserted that mining is
not suggesting that there should not be regulations and that the
regulation should not be strict. She set forth that regulations
need to be efficiently applied with consistency and transparency
for the benefit of the economy and nation. She said industries
need to know what the rules are and that the same rules are
applied to everybody. She asserted that preemptive decisions and
making decisions on bad science is not good for any particular
industry. She remarked that regulatory uncertainty is not good
for the country as whole, because the U.S. economy's strength is
based on rule of law and due process. She summarized that
regulatory uncertainty makes it difficult for businesses to make
decisions and attract investment.
12:53:23 PM
SENATOR FAIRCLOUGH noted that Alaska's exploration spending has
declined 38 percent between 2012 and 2013. She asked if Anglo
American pulling out of the Pebble Mine Project (PMP) was taken
into consideration for the exploration spending reduction
between 2012 and 2013.
MS. MATTHIAS replied that the exploration decline referred to
2013 numbers and do not take into account Anglo American's
withdrawal from the PMP. She asserted that the 2014 exploration
spending numbers will likely be quite different.
SENATOR FAIRCLOUGH responded that some hedging on spending
numbers may have been taken into account to reflect the PMP's
change in ownership. She asked what the exploration decline
percentage might be from PMP's change in ownership.
MS. MATTHIAS replied that PMP's exploration budget going forward
is going to be less. She said 2014 exploration spending by other
projects is not known. She surmised that a large increase in
exploration spending is not anticipated for 2014 due to tight
commodity markets and tight exploration dollars.
12:55:15 PM
VICE-CHAIR DYSON asked for a presentation summarization.
[Slide 38, Mining Will Work for Alaska."] Ms. Matthias set forth
that Alaska is in somewhat of a tenuous position. She said on
the positive side, Alaska is comparatively stable politically
and economically with rich resources. She stated that Alaska's
operating mines have shown that they can operate well and
responsibly.
MS. MATTHIAS noted that Alaska's mining industry faces
challenges due to the federal regulatory environment, lack of
infrastructure, and energy prices. She added that the Alaska
Legislature also faces difficult fiscal decisions. She declared
that Alaska's prosperity requires economic diversity and mining
is a part of the solution. She conceded that mining and other
industries do not compete with oil and gas in terms of state
revenue. She asserted that the mining industry does make a
difference on the regional level by providing year-round, high
paying jobs in remote areas. She pointed out that the mining
industry makes tax payments to local boroughs that provide snow
removal equipment, contributes to schools and emergency
services, and spends with the hundreds of Alaska businesses that
provide goods and services.
She summarized as follows:
We need mining, we know that it can be done right, and
we believe that we are doing it right.
VICE-CHAIR DYSON asked that CAP and AMA let the mining industry
know that their efforts are recognized and appreciated. He
commented that some of the legislators are mining industry fans.
12:57:28 PM
There being no further business to come before the joint
committee, Vice-Chair Dyson adjourned the Joint Resources
Committee meeting at 12:57 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| Mining Industry Brief 20140205.pdf |
SRES 2/5/2014 12:00:00 PM |