North of 60 Mining News - The mining newspaper for Alaska and Canada's North

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By Shane Lasley
Mining News 

Miners see bumpy road to mineral riches

Execs cite lack of infrastructure and lengthy litigation as top concerns for doing business in rural state that needs industry


Last updated 1/25/2009 at Noon

Alaska is rich with minerals and considered a safe place to do business. As a result, investment has flowed into the state. Today, a variety of mines and mining projects are scattered across the vast Alaska landscape, from the Greens Creek silver mine and Bokan Mountain uranium project in Southeast Alaska to the world-class Red Dog zinc-lead mine and Northwest Arctic Coal Project in Northwest Alaska; and from the giant Pebble copper-gold-molybdenum project and the Donlin Creek gold project in Southwest Alaska to the Fort Knox and Pogo gold mines in Interior Alaska.

But the state still has a ways to go when it comes to fostering the best environment for mining.

Executives and geologists who operate the mines, projects and exploration programs that have come to Alaska told Mining News that more and better infrastructure, affordable power and an end to frivolous lawsuits top their list of concerns about doing business in the state.

Addressing these concerns not only could help develop Alaska's rich mineral resources, but also could help revitalize the economies of some of the state's most challenged regions.

Lack of infrastructure

While Alaska may be mineral-rich, it is infrastructure-poor. Once an explorer travels west of the Railbelt and the Prudhoe Bay Haul Road, which dissect the state north to south, there are no roads to transport mineral resources to the rest of the world. This remote land-mass, larger than Texas, hosts Donlin Creek, Pebble, Red Dog and an immense amount of discovered and yet to be found mineral prospects.

"Most of the resource that is being found in the state is off the road system, off the power grid. The state and local governments have generally not been involved in constructing that infrastructure," said Pebble Partnership CEO John Shively.

Alaska's government has yet to extend its road system and power grid into these remote regions, but it has recognized the need for infrastructure in order to make many remote mining projects profitable. To this end, the government launched the "Roads to Resources" program. The Alaska Department of Transportation and Public Facilities is currently studying possible routes to build a road that would connect Alaska's Railbelt road system to Nome 500 miles to the west.

Affordable power

The lack of access also exacerbates problems miners have obtaining affordable power to operate mines in the remote areas, an issue currently facing the Donlin Creek and Pebble projects.

The question of power supply has raised concern and contention for partners Barrick Gold Corp. and Novagold Resources Inc. at the colossal Donlin Creek gold project. NovaGold, worried about the cost and logistics of delivering diesel to the remote site, studied the possibility of building a 250-mile power line to the railbelt. After completing detailed scoping studies, the Donlin Creek partners concluded that the best solution would be onsite diesel and wind cogeneration for power.

The preferred solution for supplying an estimated 600-plus megawatts of electricity needed to operate a mine at Pebble is to run a power line from a natural-gas-fired plant 200 miles to the east. Pebble's owners also hope to work with state government to bring affordable power to the remote region's communities as far as 150 miles beyond Pebble.

"If we are going to take inexpensive power to the mine, I believe we have to take it to the rest of the region. Not just the villages that are near the mine, but to Dillingham, Naknek, King Salmon (and) places like that," said Shively, who is a former Alaska natural resources commissioner.

While building infrastructure that will provide access to mineral resources scattered across the most remote reaches of Alaska is not an easy or inexpensive prospect, the benefits go beyond making mining projects economic or putting money in state coffers. More affordable road access and energy as well as good paying jobs that mining brings could be crucial to the survival of many of the state's rural communities.

Litigation a concern

Though not unique to Alaska, litigation is a primary concern for companies developing mining projects in the state. The Kensington gold project, which has a tailings permit that is currently facing a legal challenge in the U.S. Supreme Court, is a prime example of what makes the industry uneasy.

"Kensington is in a situation where they could go into reclamation before they produce an ounce of gold," Shively explained. "Virtually every project gets litigated. It adds time, it adds risk and it adds money."

NovaGold understands that all too well. Delays at its Rock Creek gold mine near Nome due to challenges to its wetlands permits cost the company millions of dollars and threw off the timing of the project.

"To go through that process and then have the permits challenged, there is a huge financial burden on the company when that happens. That is exactly what happened to us at Rock Creek," said NovaGold President and CEO Rick Van Nieuwenhuyse.

Anticipating litigation, the Pebble owners, Anglo American plc and Northern Dynasty Minerals Ltd., have factored in court time into the project's timeline. The partners plan to begin permitting by the end of 2009.

Ballot initiative

Pebble already has prevailed in a challenge at the ballot box. The project drew a challenge in the form of a citizens' initiative in 2008. The original draft of the initiative, written in 2007, specifically targeted Pebble. When that version was ruled unconstitutional, Pebble's opponents re-wrote the measure so that it threatened Alaska's entire mining industry. The final draft, Ballot Measure 4, was defeated by Alaska voters during the state's primary election Aug. 26.

Mining leaders across the board say the initiative's defeat was encouraging. They believe it signaled Alaska's support for mining and resource development.

Some leaders from the mining community are concerned about the initiative process itself. They feel it is a bad way to construct important and complicated environmental policy, and feel the state's legislative process is the appropriate venue for that.

"Complicated matters belong in Juneau. You have a process there where an issue in which there is a disagreement on its impact gets fully vetted by agencies, opponents and proponents; not by sound-bites on television, said Pebble spokesman Mike Heatwole. "Slogans are easy to throw out there, and the ramifications can be significant."

Another concern many miners in Alaska voice is the disproportionate power of the state's ballot measure process in which individuals can, in effect, create state law without being held to the same financial disclosure standards required of state legislators.

More than half of the $2.85 million raised to promote Ballot Measure 4 by the Alaskans for Clean Water campaign came from a Virginia-based soft money organization, and seven individuals from outside Alaska contributed $2,500 to $50,000 each to the "vote yes on 4" campaign, according to the Alaska Public Offices Commission. Also, these figures do not include the soft money organization's direct spending on advertising.

Alaska Rep. Kyle Johansen, R-Ketchikan, is working on legislation that would hold individuals and groups that support or oppose ballot measures to similar financial disclosure standards as those required of elected officials.

Proposed mining bills

Rep. Paul Seaton, R-Homer, a commercial fisherman, has proposed two pieces of legislation aimed at the mining industry. Seaton has submitted a mining tax bill (House Bill 40) and a mixing zone bill (HB 46) to be heard by the Alaska Legislature this session. Earlier versions of both bills have been floating around Juneau since 2006.

One of Seaton's bills proposes changing a current three-and-a-half year exemption from paying a mining license tax to a deferral that is payable over the next 10 years of production. Rates are increased by 2 percent per income bracket with a marginal tax bracket for net income over $1 million to be added and taxed at 11 percent.

HB 40 also suggests changes to the calculation of state royalties for mineral mining on state land from the current 3 percent of net income to a 3 percent net smelter return tax.

The bill also updates the royalty for coal by setting the 5 percent of adjusted gross value currently in regulation as a minimum that can be negotiated with the governor's administration.

"Alaska's mining industry bears a light tax burden compared to Alaska's other high-value resource industries," Seaton said.

Win-win situation

By contrast, Alaska's neighbor, British Columbia, has set in motion plans to introduce legislation to provide relief to the mining industry, not increase its fiscal burden. B.C. leaders plan to extend, subject to the approval of the provincial Legislature, the Mining Flow-Through Share Tax Credit to the end of 2009, retroactive to Jan. 1, 2009. The province is also creating a new economic mining task force to help B.C.'s mining industry weather the worldwide economic downturn.

"Mining is an incredibly important industry for British Columbia families, workers and communities and this government is dedicated to making sure it remains a strong part of our economy," said British Columbia Premier Gordon Campbell.


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