HOUSE FINANCE COMMITTEE February 7, 2006 2:05 P.M. CALL TO ORDER Co-Chair Meyer called the House Finance Committee meeting to order at 2:05:37 PM. MEMBERS PRESENT Representative Kevin Meyer, Co-Chair Representative Richard Foster Representative Mike Hawker Representative Jim Holm Representative Reggie Joule Representative Mike Kelly Representative Carl Moses MEMBERS ABSENT Representative Mike Chenault, Co-Chair Representative Bill Stoltze, Vice-Chair Representative Beth Kerttula Representative Bruce Weyhrauch ALSO PRESENT Irene Anderson, Chair, Bering Straits Native Corporation, Nome; Rich Heig, Member, General Manager, Kennecott Greens Creek Mining Company, Juneau; Karl Hanneman, Member, VP Teck Pogo Inc., Fairbanks; Charlotte MacCay, Member, Constultant, Bristol Environmental & Engineering Services Corporation, Anchorage; Greg Beischer, Member, Consultant, Bristol Environmental & Engineering Services Corporation, Anchorage; Neil MacKinnon, Vice Chairman, Hyak Mining Company, Juneau; Del Ackels, Member, Goldust Mines, Fairbanks; Bartly Coiley, Member, Usibelli Coal Mine, Inc., Fairbanks & Healy; Don Cook, Member, Cook International, Fairbanks; Rich Hughes, Staff, Development Specialist, Office of Mineral Development, Office of Economic Development, Department of Commerce, Community & Economic Development, Fairbanks ^ GENERAL SUBJECT(S): The following overview was taken in log note format. Tapes and handouts will be on file with the House Finance Committee through the 24th Legislative Session, contact 465- 6814. After the 24th Legislative Session they will be available through the Legislative Library at 465-3808.   OVERVIEW: ALASKA MINING COMMISSION TIME SPEAKER DISCUSSION  2:05:46 PM Co-Chair Meyer Convened the House Finance Committee meeting to discuss the Alaska Mining Commission's findings and hear their presentation and overview. [Copy on File.]  ALASKA MINING COMMISSION  2:06:33 PM IRENE Introduced the presenters and ANDERSON, distributed a copy of the "Report of CHAIR, BERING the 2006 Alaska Minerals Commission". STRAITS NATIVE [Copy on File].  CORPORATION, NOME 2:07:07 PM KARL HANNEMAN, Noted that the Commission was pleased MEMBER, VP to have the opportunity to discuss TECK POGO issues of the mining industry. He INC., provided background of the Mining FAIRBANKS Commission, which was created by the Legislature in 1986. The Commission is authorized through 2014. He stated that the duty of the Commission was to provide information to the State and the Legislature on how to improve the mining industry.  2:08:36 PM Mr. Hanneman Summarized the work of the industry. He noted that it is composed of three different categories. · Exploration · Development · Production The State industry value has steadily increased and has a total overall value of $1.6 billion dollars.  2:09:20 PM Mr. Hanneman Pointed out that the mines that have come along are located in diverse geographic areas throughout the State. He highlighted the new mines and projects in Southwest Alaska. The mineral industry projects provide a rare economic opportunity in diverse areas of Alaska.  2:10:18 PM Mr. Hanneman He noted that some of the recommendations deal with the taxation issues. There are a few key issues that need to be focused upon that relates primarily to finance concerns. He summarized the existing taxation regime.  2:10:46 PM Mr. Hanneman · Mining license tax - first enacted  by the Territorial Legislature in 1913. · Mining rents and royalties - mineral development major factor at statehood.  2:13:17 PM Mr. Hanneman Pointed out the chart indicating the total growth of value of Alaska Mineral Production and subject to taxation. Growth increments come, bringing on new mines in Alaska. The last increase was in 2004 & 2005, resulting from a worldwide market price increase.  2:14:22 PM Mr. Hanneman From the increased profitability, the Industry is seeing growing payments from the industry to the municipalities. He spoke to the State's rents and royalties. He noted that there has been a substantial increase in the license tax since 2003 and 2004.  2:15:57 PM Mr. Hanneman Highlighted the Mineral Commission's key issues: · Tax Considerations · Geological & Geophysical Mapping · AMEREF The commission recommends that the Governor and the municipalities work to create a fair and stable tax regime.  2:18:32 PM Mr. Hanneman Pointed out that Alaska has one of the poorest map coverage in the world with respect to geophysical & geological concerns, which discourages investors. The Mineral Commission requests that level of funding be added and increased to $1 million dollars this year.  2:20:34 PM Mr. Hanneman Identified AMEREF and noted that it is an Industry/Government partnership to support resource education. It is an excellent tool for public schools education regarding the natural resource industries. He recommended that $100 thousand dollars be appropriated to support that program.  2:21:26 PM Mr. Hanneman Highlighted the other findings & recommendations. He pointed out the recommendations: · NPDES Program Primacy · Litigation Reform · Permit Efficiency · General Permits for Small Remote Work Camps  · Mixing Zones · Roads to Resources · Power Supplies  2:22:22 PM Mr. Hanneman Summarized that if the State continues to provide stable fiscal and regulatory policy, the Industry has a lot of growth potential. He projected that it could double in the next decade.  2:23:13 PM Representative Asked for more information on the Kelly mixing zones.  2:23:39 PM Mr. Hanneman Pointed out that there was a recommendation in the report regarding mixing zones. He added that the Commission has advocated for the opportunity to mitigate to determine whether they are or are not appropriate.  2:24:08 PM CHARLOTTE Added, with the change in restrictions, MACCAY, there is an increased need for other MEMBER, water quality regulations to be fixed CONSTULTANT, so that natural background criteria are BRISTOL considered.  ENVIRONMENTAL & ENGINEERING SERVICES CORPORATION, ANCHORAGE 2:24:59 PM Representative Asked if it is anticipated that there Kelly will trouble regarding that concern.  2:25:13 PM Mr. Hanneman Responded that with potential mining projects moving toward the next decade, there needs to be additional regulatory flexibility. He urged science-based evaluation regarding real impacts.  2:26:30 PM Representative Commented on the argument being Hawker proposed by the business end of the community in the State, who voice strong objection to any further funding of the budget & advocate cutting this year's budget. He referenced the increased mining request.  2:27:22 PM Mr. Hanneman Responded that in the context of historical spending, the request is not a significant increment. He emphasized the good policy for fiscal tracking.  2:28:13 PM Representative Reiterated concern on the proposed Hawker requests and noted inconsistencies.  2:28:45 PM GREG BEISCHER, Replied that in terms of mapping, when MEMBER, the State makes an investment there, it CONSULTANT, is an immediate economic benefit, BRISTO drawing interest in companies that are ENVIRONMENTAL willing to spend money developing. It  & ENGINEERING is a small investment, which comes back SERVICES to the State many times over.  CORPORATION, ANCHORAGE 2:29:38 PM Representative Commented on a recent case ruling (RS Foster 2477) and asked the impact.  2:30:01 PM Mr. Hanneman Did not know and offered to provide that information after researching it.  2:30:54 PM Representative Requested further information on mixing Kelly zones to help with specific legislation. He offered to meet with the industry.  2:31:59 PM Co-Chair Meyer Inquired how Alaska taxation compares to other states and countries.  2:32:20 PM Mr. Hanneman Mentioned that there have been studies produced over the years and that Alaska rests somewhere in the "middle". History indicates many years of litigation.  2:32:58 PM Co-Chair Meyer Pointed out that legislators are looking at the oil company tax credits for those companies that invest back into the State. He asked if that type credit would work for the mining industry.  2:33:20 PM Mr. Hanneman Stated that several years ago, the Legislature passed the exploration credit bill, which has been viewed, extremely favorable by the industry. That legislation helped instigate exploration and development in Alaska and sent the "right message"- Alaska is "open for business".  2:34:09 PM RICH HEIG, Informed members that there are only MEMBER, four large operating mines in the State GENERAL of Alaska. He pointed out that the MANAGER, mining industry pays a corporate income KENNECOTT tax of nearly 30%. Currently, the GREENS CREEK mining industry is "seeing good times" MINING and in the last two years has a rate of COMPANY, return of 5%. It takes many years to JUNEAU bring a project "on" to actually produce the metal. The Mineral Commission believes that the current tax is fair on the mining industry.  2:35:53 PM Co-Chair Meyer Noted that it is also a very "litigated" industry and asked if they were currently at a "stop order". Mr. Heig noted that was the Kensington Mine. Co-Chair Meyer asked about projected employment growth.  2:36:29 PM Mr. Hanneman Stated that the projection was close to  5,000, which could happen if the other major projects come to fruition. He addressed industry growth potential, highlighting the slide.  2:37:08 PM RICH HUGHES, Clarified that the drop indicates the STAFF, curtailing of construction activity. DEVELOPMENT He noted that the number reflects both SPECIALIST, the construction and production.  OFFICE OF MINERAL DEVELOPMENT, OFFICE OF ECONOMIC DEVELOPMENT, DEPARTMENT OF COMMERCE, COMMUNITY & ECONOMIC DEVELOPMENT, FAIRBANKS 2:38:20 PM Co-Chair Meyer Assumed that the local hire rate was good.  2:38:27 PM Mr. Hanneman Said it is not 99%.  Representative Thought in his area it was around 60%. Joule Mr. Hanneman thought that number was a shareholder number. Representative Joule agreed.  2:39:08 PM Mr. Hanneman Advised that there is a report from 2003, summarizing mining employment, indicating approximately 83% Alaskan hire. It is a challenge to work-under ground; there is not a lot of training in Alaska.  2:40:01 PM Co-Chair Meyer Asked about training efforts. Mr. Hanneman referenced the Delta Mining Training Center, working in cooperation with the Department of Labor & Workforce Development. He reiterated that recruiting people into that program is a challenge.  2:40:50 PM Representative Pointed out that initially, training Joule took place in Seward and the success rate was only 30% because the trainees had to go so far from home. When it was moved to the Kotzebue Tech Center, the success rate increased to 80%. He mentioned the impact of success when social environment is taken into consideration.  2:41:50 PM Representative Asked if the School of Mines at the Joule University in Fairbanks was providing the necessary level of education.  2:42:18 PM Mr. Hanneman Pointed out a recommendation to help  solidify and strengthen the School of Mines by establishing a special professor Chair to help guide both the oil and mining industry. He requested that the Legislature provide support to fill that position. There are four mining and/or environmental engineers working with the Commission from the University of Alaska. At this time, the Commission would like two more; they are not available.  2:43:46 PM Representative Noted that usually the interest and Hawker beneficiary groups endow University Chairs. He asked if the mining industry would consider that.  2:44:19 PM Mr. Hanneman Advised that there has been discussion regarding that. During the school reorganization, short and long term funding was discussed.  2:44:33 PM Representative Mentioned borough taxation of the Holm boroughs and the newly formed borough. He asked how the negotiations were going with them.  2:44:56 PM Mr. Hanneman Replied that the Industry has signed a payment in lieu of tax agreement with the City of Delta Junction in November 2005. It provides a schedule of payments and taxation schedule structure. The public process proceeding with a vote is ongoing. The Commission has pledged support of borough formation.  2:45:50 PM Representative If not, what happens. Holm Mr. Hanneman stated if they do not, the Commission would evaluate what the best State policy should be.  2:46:16 PM Representative Asked when it is anticipated that there Kelly will be an answer. Mr. Hanneman replied that the target is first quarter, 2006.  2:46:42 PM Representative Inquired about the effort to work with Joule local communities when it is known that an area near them may "come on line" and how they are "warmed" to that idea. He reminded members of conflicts with potential subsistence uses in those areas.  2:47:41 PM Mr. Hanneman Acknowledged that was a valid concern. As mines develop and the exploration occurs, there is tremendous education that needs to take place. Some projects require many years in the community to foster that communication.  Each project is different and has its own challenges. There are always tangible benefits by offering jobs, etc. Those are "real & hard issues", but hopefully, by leading by example, the other mines help share the message and understanding of the benefits.  2:49:47 PM Co-Chair Meyer ADJOURNMENT The meeting was adjourned at 2:50 P.M.