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Upcoming mines eye Alaska natural gas

As Donlin Gold prepares to build 315-mile pipeline to Cook Inlet, other projects in Alaska, Yukon line up for North Slope LNG

Alaska's natural gas is increasingly replacing diesel as the fuel of choice for mines and mining projects across the Far North State and Yukon Territory.

At roughly 37 trillion cubic feet, Alaska is awash in natural gas; however, some 35 tcf of these known reserves are isolated in the Arctic oil and gas fields of the North Slope. The balance, located in the Cook Inlet basin that stretches southwest from Anchorage, has been developed primarily to serve consumers in the south-central region of the state and currently does not have the excess capacity to fuel mines that may be on the horizon.

Without a delivery system from the north or further development in Cook Inlet, these rich Alaska sources of natural gas have been considered too unreliable for mining companies to bank on. An increase in the amount of liquefied natural gas available for export to the Pacific Rim and headway being made to begin delivering LNG from the massive reserves on Alaska's North Slope is tipping the scales.

This change in dynamic prompted Donlin Gold LLC to consider a $1 billion investment in building a pipeline from Cook Inlet to the project located in the Kuskokwim region of Southwest Alaska as the best choice to fuel the future mine.

"The use of natural gas supplied via the proposed pipeline project has been evaluated by Donlin Gold and determined to be the most practicable cost effective and environmentally acceptable means of providing a reliable long-term energy source for the proposed Donlin Gold mine project," Donlin Gold explained in its pipeline development plan.

In May, the developer of the 40-million-ounce gold project, filed an application to lease a right-of-way for the pipeline.

In the meantime, owners of mines and mineral projects in more northern regions of the state, as well as at least one potential miner in Yukon Territory, are hoping that LNG trucked from Alaska's North Slope will provide a lower cost and environmentally friendlier solution to fueling their envisioned mines.

The availability of LNG is a product of the Interior Energy Project, part of Alaska Gov. Sean Parnell's plan to provide affordable gas to Interior and rural Alaskans.

Senate Bill 23, which received unanimous approval in the Alaska Legislature in 2013, authorizes the Alaska Industrial Development and Export Authority to provide up to US$275 million in financing for a natural gas liquefaction plant on the North Slope and a LNG distribution system in the Fairbanks region.

While this gas is primarily aimed at lowering the notoriously high heating bills for residents of Interior Alaska, the North Slope LNG plant is expected to have the capacity to provide LNG to other customers and is being built for expansion as demand grows.

Donlin Gold pipeline

A natural gas pipeline stretching across Alaska is getting nearer to a reality, though it is not the long-envisioned conduit from the North Slope. Instead, this pipeline will stretch from Cook Inlet to the 40-million ounce Donlin Gold deposit in Southwest Alaska.

When partners, Novagold Resource Inc. and Barrick Gold Corp., completed a feasibility study for Donlin Gold in 2009, diesel was considered the best option for generating electricity at the anticipated Kuskokwim area mine.

An abundance of affordable LNG becoming available for import into Alaska, however, prompted Donlin Gold to reconsider natural gas as an option for powering the enormous operation.

While the 50-50 partnership between NovaGold and Barrick Gold would prefer to source this gas from Alaska, the company had to rely on imported LNG when penciling the economics for an updated feasibility study completed in 2011.

"We have to do the study based on what we can today say we can do," Rick Van Nieuwenhuyse, former president of NovaGold Resources, told Mining News at the time. "There is a shortfall right now and LNG is seen as at least an interim solution to either finding more gas in Cook Inlet and/or bringing gas down from the North Slope."

The 2011 feasibility study envisions a 53,500-metric-ton-per-day mill churning out an average of 1.1 million ounces of gold annually at a cost of US$585 per ounce for 27 years. During the first five years of operation, this annual average is expected to be some 1.5 million ounces of gold at an average cash cost of US$409 per ounce.

Around 85 megawatts of electricity, roughly equivalent to the residential power consumption of around 120,000 people, would be needed to power this colossal operation.

Donlin Gold determined that natural gas could reliably provide this power for about US12 cents per kilowatt/hour, not including the roughly US$1 billion of capital invested in building a natural gas pipeline from Cook Inlet to the proposed mine site.

In addition to lowering the cost of producing power, the delivery of natural gas via a pipeline is logistically simpler and more reliable than the original plan of delivering diesel to the remote site.

Getting diesel to the proposed Donlin Gold Mine will involve a tanker delivering it to Dutch Harbor, at which point the fuel would be ferried across the Bering Sea to Bethel via marine barge and then transferred to river barges for the final leg up the Kuskokwim River to the mine site. Even with natural gas-fired generators, the fleet of massive mining equipment will still consume 40 million gallons of diesel per year. This, however, is a 67 percent reduction in the barge-delivered diesel required if the generators also burned this fuel.

"Access to the Donlin Gold mine site is seasonal via the Kuskokwim River or by aircraft, as weather conditions allow. Thus, the natural gas pipeline is needed to bring in a stable and reliable source of energy sufficient for the active mine life currently projected to be approximately 25 to30 years," Donlin Gold explains.

In May, Donlin Gold submitted an application to Alaska regulators to lease a right-of-way for the pipeline.

The 14-inch diameter pipeline would originate at the west end of the Beluga natural gas field about 30 miles (48 kilometers) northwest of Anchorage and run 315 miles (507 kilometers) to the Donlin Gold mine site.

Donlin Gold LLC hopes to have authorizations in hand to begin pipeline construction in 2016 with the goal of delivering natural gas to the mine site by mid-2019.

The U.S. Army Corps of Engineers, meanwhile, continues its preparation of a draft environmental impact statement, which is expected to be published around August 2014. Incorporating the input from the public comment period, the Corps will prepare a final EIS, an exercise expected to take about a year. A decision on the final EIS and the bevy of accompanying permits is slated for the end of 2015.

"We are continuing to advance the permitting at Donlin. This is not the most exciting activity out there, but we are making good progress and it is about a four-year undertaking," NovaGold President and CEO Greg Lang informed shareholders during the company's 2014 annual meeting.

If permits are approved, mine construction is anticipated to take about four years, or about the time Donlin Gold hopes to have gas delivered to the site.

Wellgreen eyes Alaska LNG

Yukon Territory explorer Wellgreen Platinum Ltd. (formerly Prophecy Platinum) is the latest mining interest to reserve a spot in line to buy LNG from Alaska's Interior Energy Project.

Wellgreen is endeavoring to develop a mine at its namesake platinum group metals-copper-nickel project located near the Alaska Highway roughly 160 kilometers (99 miles) southeast of the Alaska-Yukon Territory border crossing.

Similar to Donlin, diesel was the fuel assumed to power a mine at Wellgreen in a preliminary economic assessment completed for the project in 2012. The potential to truck North Slope LNG to the project has caused the hopeful Yukon miner to reconsider.

In June, Wellgreen signed a memorandum of understanding with Northern Lights Energy LLC for potential supply of LNG from the North Slope project.

"The MOU (with) Northern Lights Energy is beneficial not just for Wellgreen, but for Alaska," said Rick Adcock, managing director of Northern Lights Energy. "We look forward to working with the Wellgreen team as we move forward with our commitment to the Interior Energy Project."

The 2012 PEA outlines plans for a 32,000-metric-tons-per-day operation at Wellgreen, producing 1.96 billion pounds nickel, 2.06 billion pounds copper and 7.12 million ounces platinum-palladium-gold in concentrate over a 37-year of mine life.

An updated PEA that investigates starting with lower throughput that initially targets higher grade ore; improved PGM and base metal recoveries based on recently completed metallurgical tests; and the potential of using LNG to power the mine is expected to be completed in coming weeks.

"We are very pleased with this agreement with Northern Lights Energy, which fits Wellgreen Platinum's timelines and objectives of utilizing a cost-effective and environmentally responsible source of energy for the Wellgreen project," said Wellgreen Platinum President and CEO Greg Johnson.

Wellgreen and Northern Lights also plan to investigate whether there are opportunities to make Alaska LNG available as a clean and competitively priced power source to southwestern Yukon communities along the Alaska Highway, such as the Kluane and White River First Nations.

Johnson said, "We believe this supply of LNG may potentially bring additional benefits from the Interior Energy Project to both Alaskans and to Yukon communities along the Alaska Highway, which currently rely on more expensive and less environmentally friendly diesel for power generation. This agreement also demonstrates the opportunities for other infrastructure-related cross-border working relationships that can benefit communities in the Yukon and Alaska."

In conjunction with its agreement with Northern Lights Energy, Wellgreen signed an MOU with General Electric Canada for the potential supply of LNG power generation equipment and services.

"We look forward to partnering with Wellgreen Platinum to advance the Wellgreen project toward production," said David Willick, regional commercial director, GE Mining.

"Our agreement with GE has the potential to expedite development of the Wellgreen project as an efficient, safe and sustainable operation," said Wellgreen Platinum COO John Sagman.

Wellgreen aims to initiate feasibility level studies and begin the environmental assessment process for its namesake project as early as 2015.

Trucking LNG to Ambler

NovaCopper also hopes to fuel its forthcoming mine at the Arctic deposit in the Ambler Mining District of Northwest Alaska with LNG produced at the Interior Energy Project plant on the North Slope.

Delivering the fuel, however, is contingent upon completion of the Ambler Mining District Industrial Access Road, another project being pursued by AIDEA. As proposed, the Ambler Road would head west from the Dalton Highway roughly 200 miles (320 kilometers) to the Ambler Mining District, where Arctic and a number of other copper-rich deposits are located.

According to a preliminary economic assessment completed in 2013, open-pit mining of the volcanogenic massive sulfide deposit at Arctic is projected to require 15 megawatts of peak load power. The PEA for developing the Arctic deposit projected that five 3.6 MW diesel generators would provide this electricity. Onsite power costs using diesel are estimated to be US32.2 cents/kWh, assuming a diesel price of US$4.47 per gallon.

The PEA estimates the open-pit mine scenario would produce an after-tax net present value (8.0 percent discount) of US$537.2 million; internal rate of return of 17.9 percent; and payback of five years.

"The results of the PEA show that the Arctic deposit has positive economics even in today's low metal price environment. The project has excellent margins with annual average payable production of about 125 million pounds of copper at an average cash cost of US62 cents per pound of copper net of by-product credits. On that basis, once in production as contemplated by the PEA, Arctic would be in the lowest quartile among copper producers in terms of cash costs," said Van Nieuwenhuyse.

NovaCopper believes that the cost of producing a pound of copper could be driven lower if LNG delivered from the North Slope replaced diesel as the fuel for generating electricity at the proposed Arctic Mine.

"Nearly half of our costs are related to power generation and the base case assumes that we will deliver diesel fuel to site from Fairbanks. We think there is a real upside here, because AIDEA is also working on construction of an LNG plant on the North Slope, and if they actually complete that, we are looking at buying LNG and converting that to gas. We think that will be lower costs and lower emissions," Van Nieuwenhuyse explained.

NovaCopper anticipates signing a memorandum of understanding with AIDEA to explore the feasibility of trucking LNG from North Slope Plant to the proposed Arctic processing facility.

Lowering Interior power bills

As a byproduct of lowering the high heating costs in and around Fairbanks, the Interior Energy Project stands to reduce electrical costs to Interior Alaska residents and mines, alike.

While conceding that lower heating bills is the greatest benefit promised to be provided by the coming LNG, Golden Valley Electric Association said a lower cost fuel source like natural gas would help stabilize electric rates by offsetting expensive oil-fired generation.

Lower electric bills would be a boon to Interior gold mines such as Kinross Gold's Fort Knox operation north of Fairbanks and Sumitomo Metal Mining's Pogo Mine near Delta, as well as potential mines such as International Tower Hill Mines' Livengood project.

In 2012, Kinross Gold spent roughly US$40 million, or about US$110,000 per day, on power at the Fort Knox gold mine, situated about 26 miles (42 kilometers) north of Fairbanks. Bring down this cost could help extend the life of Fort Knox and the 600 high-paying mining jobs that go with it.

The availability of lower cost electricity also will help improve the viability of developing a mine at the Livengood project located about 70 miles (110 kilometers) northwest of Fairbanks.

A feasibility study completed in 2013 anticipates a 100,000-ton-per-day mill at Livengood churning out 8.1 million oz. of gold over an initial 14-year mine life. This comes to 577,600 ounces annually; and anticipates an average annual output of 698,500 oz of gold over the first five years of operation.

International Tower Hill is currently seeking ways to reduce the US$1,474 all-in cost for mining an ounce of gold at the project.

Finding ways to lower the presumed electrical costs is one area that could directly dial back the operating expenditure side of the all-in metric. Beyond less expensive electricity, the Livengood development team believes that mill throughput and production schedule optimization studies may provide opportunities to reduce project capital costs.

AIDEA currently plans to have the first trucks laden with LNG making deliveries to Fairbanks before the cold dark days of winter settle over Fairbanks in 2015.

Author Bio

Shane Lasley, Publisher

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Over his more than 16 years of covering mining and mineral exploration, Shane has become renowned for his ability to report on the sector in a way that is technically sound enough to inform industry insiders while being easy to understand by a wider audience.


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