Developers of the Kensington gold project in Southeast Alaska received a solid vote of confidence from Alaska's state government, with nearly unanimous legislative approval of a bill that would allow up to $20 million in tax-exempt bonding for port and tailings impoundment facilities.

The bill was passed by the Alaska Legislature in early May and signed into law in early June. It's the first step in a six-month to year-long process of approving bonds issued by the Alaska Industrial Development and Export Authority for Coeur d'Alene Mines Corp. in its development of the Kensington hard rock mine and mill 45 miles north of Juneau.

Coeur has permit applications pending with state and federal regulators to build an underground mine and mill facility, which would produce an estimated 100,000 ounces of gold each year. The company's current estimated cost for construction is $85 million, according to Coeur's website describing its final updated feasibility results for the project. A final supplemental environmental impact statement for Kensington, along with authorizing permits, is scheduled for release Oct. 29 according to the U.S. Forest Service, the lead regulatory agency for the project. Coeur anticipates construction starting late this year, with completion and gold production expected in 2006.

AIDEA's due diligence and bonding approval may not be completed before construction begins, noted Jim McMillan, AIDEA's deputy director of credit and business development.

"This does not preclude Coeur starting construction of the project themselves, and using our money in the form of the tax exempt bonds for reimbursement for some of the costs," McMillan said. "They have the capital to do the entire project - the only reason they came to us is for the potential that the tax-exempt bonds provide lower cost funds than the company's internal funding."

Bonds for port and tailings storage

AIDEA bonds may be used to construct port facilities, providing coastal access for the Southeast Alaska project. Those bonds require government ownership and availability of public use to meet Internal Revenue Service tax-free status, McMillan said. Coeur's current development plans call for port facilities at Cascade Point and Slate Creek Cove, about five miles from the proposed mill site. A marine terminal to receive supplies and to ship ore would be constructed in Slate Creek Cove off of Berners Bay.

Employees will be transported to the mine via ferry from Cascade Point, near the northern end of the Juneau Veterans Memorial Highway. Coeur plans daily bus service between Cascade Point and Juneau, eliminating on-site employee housing in camp facilities.

AIDEA bonds may also be used in constructing the mine's tailings impoundment. Because the tailings facility would be regulated under the state's solid waste disposal permits, tax-exempt bonds could be used without AIDEA ownership, according to Becky Gay, AIDEA spokeswoman.

Coeur plans to store tailings in waters of Lower Slate Lake, keeping a minimum of nine feet of water over the highest level of rock. That, combined with planned tailings dam raises, will ultimately create a larger lake and more habitat for wildlife, Gay said. Tailings will be transported from the mill to the lake via a 3.5 mile buried pipeline.

Reimbursable agreement needed

Now that the Legislature and the governor have signed off on the bonding proposal, AIDEA has begun the process of approval.

In addition to seeking a letter regarding the IRS ruling on whether tax-exempt bonds can be issued, AIDEA is seeking a cost reimbursable agreement with Coeur. That will require the mining company to pay for AIDEA's costs incurred in the bonding approval process, McMillan said, which will cover the state's due diligence review of the project.

"We contract with third party consultants to do that (due diligence)," he said. "If the bonds are issued, that cost is covered by the bonds. But if they do not go forward with the bonds, (Coeur) will pay back our expenses."

Kensington project details

Coeur plans to build a hard rock mill and administration facilities in the Johnson Creek drainage, in the vicinity of the Jualin Mine, which is a little more than two miles south of the Kensington deposit.

A 12,000-foot tunnel connecting the Jualin and the Kensington mineralized areas is also proposed, allowing milling facilities to be located further inland, out of view of Lynn Canal. The Kensington Gold Project will create 300 construction jobs and will provide an annual estimated payroll and benefits of about $16 million. The project will also create more than 181 additional indirect jobs and result in $7.5 million in direct local purchases during construction, according to Coeur.

Reserves for Kensington are estimated at one million ounces of gold.

There are an additional 7.2 million tons of mineralized material, averaging .12 ounces of gold per ton of rock. "Not all Kensington ore zones have been fully delineated at depth and several peripheral zones and veins remain to be explored," Coeur said on its website project description. "Coeur still views its interests in the district as holding up to five million ounces of gold."

Cash costs to produce gold at Kensington are estimated at $195 per ounce, a ccording to the company's final updated feasibility results. The expected mine life is approximately 10 years, for the initial one million ounces of reserves.