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By Shane Lasley
Mining News 

20 years and counting

Donlin Gold reaches major milestone; long path to production remains

 

Last updated 12/13/2015 at Noon



After 20 years of exploration and permitting, the Donlin Gold project is on the downhill side of gaining the permits needed to develop a mine at the 39-million-ounce gold deposit in the Yukon-Kuskokwim region of Southwest Alaska.

On Nov. 25, the U.S. Army Corp. of Engineers released a draft Environmental Impact Statement for what will likely be among the largest gold-producing mines on the planet.

The Donlin Gold Mine being considered in the draft EIS includes a 53,500-metric-ton-per-day mill that is expected to produce an average of 1.1 million ounces of gold annually at a cash-cost of US$585 per ounce for 27 years. During its first five years of operation, the mine is designed to extract 1.5 million oz. of gold annually at a cash-cost of US$409 per ounce.

"Donlin Gold's significant resource remains a great asset to Barrick," said Kelvin Dushnisky, president, Barrick Gold Corp., which is co-owner of the project.

At the current rate, it is expected that the final EIS and all the permits needed to begin construction of the 1.1-million-ounce-per year gold mine will be in place sometime in 2017.

For residents of the Kuskokwim region - many of whom were part of the team that advanced Donlin Gold to the permitting stage and many more that are looking forward to taking part in the development and operation of the world-class gold mine - the release of the draft EIS is a long-awaited milestone along a path to economic prosperity for the area of Southwest Alaska they call home.

"(Donlin Gold) has the potential to create jobs and financial benefits for TKC (The Kuskokwim Corporation) and the people in the region, allowing them to continue living off this land for generations to come," TKC President and CEO Maver Carey said upon hearing that the draft EIS has been released for public comment.

TKC is an Alaska Native village corporation that owns the surface rights at the Donlin deposit and has secured a number of benefits for its shareholders in exchange for granting Donlin Gold long-term use of the land to develop the mine and supporting infrastructure.

Stan Foo, president and general manager, Donlin Gold LLC, the joint venture company advancing the project, cautions that the actual start of production at Donlin could be later than 2021, which is indicated by the current timeline.

"There is still a long path ahead of us and a lot of challenges ahead," he said during a Dec. 3 Resource Development Council breakfast.

High hurdles

Along the long and challenging road to a mine at Donlin lies finalization of the EIS, authorization of more than 100 permits by at least a dozen federal and state agencies, and three to four years of constructing one of the world's largest gold mines some 300 miles off the beaten path in Alaska.

If and when Donlin Gold receives that final permit needed to begin development, the company then must decide whether it is prudent to do so.

While a gold price hovering near six-year lows may be advantageous for plating shovels for the groundbreaking ceremony, just above US$1,000 per ounce is not advantageous for paying back the roughly US$6.7 billion needed to build one of the world's largest gold mines.

Novagold Resources Inc. and Barrick Gold, equal owners of Donlin Gold, have individually expressed their unwillingness to develop the nearly 40-million-ounce gold mine unless the gold price looks like it is on the mend and the costs of raising the capital needed to build the mine is favorable.

A number of analysts believe gold could break below US$1,000 per ounce before trending higher.

At US$1,200-per-ounce gold, the base-price scenario used for a feasibility study completed for Donlin in 2011, the mine is predicted to generate after-tax cash flow averaging US$949.5 million annually for the first five years and would pay back its projected US$6.7 billion in capital costs in just over nine years.

When asked about how increased taxes might affect a production decision for Donlin, Foo responded, "We are going to see a gold price higher than (US$1,055 per ounce) to see this project go forward, and any additional burden placed on the project … makes that hurdle taller."

While there has yet to be any specific proposals to raise mining taxes in Alaska, such an idea will likely be revisited by state lawmakers looking for ways to close an annual budget deficit north of US$3.7 billion.

With sparse infrastructure and a sub-arctic climate, Alaska already is an expensive place to work and any added financial burdens do not weigh favorably on development of Alaska's resources.

"I am never comfortable talking about how I want to be taxed, but it is a significant concern - not just for gold but for any industry in Alaska," Foo added.

Donlin Gold, which is sitting solely on Native lands, is not subject to Alaska royalties or claim fees but the joint venture would pay mining license and corporate income taxes to the state.

Opportunities

When Donlin Gold eventually does go into production, the economic impacts and opportunities it provides will ripple out from the Kuskokwim region.

Calista Corp., the Alaska Native regional corporation that owns the subsurface (mineral) rights at Donlin, sees development of the 39-million-ounce gold deposit as a turning point for its 13,000 shareholders.

"As an Alaska Native Claims Settlement Act corporation, Calista must meet two key goals, to successfully operate as a profitable business and to provide socio-economic benefits to our shareholders. The advancement of this project can allow Calista to meet both ANCSA goals by providing an opportunity to develop partnerships for future low-cost energy, in addition to meaningful employment opportunities for shareholders and a revenue stream for Calista," explained Calista President and CEO Andrew Guy.

Donlin Gold anticipates an annual payroll of US$375 million to pay the roughly 3,000 workers during the three- to four-year construction phase. Once in production, the company expects about 800 workers making roughly US$100 million per year. Having the mine in place is expected to spur about another US$60 million a year worth of jobs.

While not all of these jobs will be filled by residents of the region, history indicates that many will. Over the past 20 years, the companies involved with exploring Donlin have built a reputation for local hire. By 2008, nearly 90 percent of the more than 200 workers at the advanced exploration project were Calista shareholders, or their descendants.

As the Army Corps works on finalizing the EIS, Donlin Gold is helping Kuskokwim residents prepare to fill the jobs that will be needed at the pending mine.

"Our focus has shifted to preparing the region for the job opportunities that will be created by the project," Foo said.

This work includes community outreach to inform area residents of the jobs that will be available at the mine and the company's requirements and expectations for the workers that will fill these positions. Donlin Gold also is providing scholarships to assist TKC and Calista shareholders in meeting the educational requirements of the coming jobs.

While Donlin Gold has built a reputation for local hire, this commitment was enshrined in a surface-land-use agreement with TKC.

In addition to job preference, the agreement, which was updated in 2014, provides direct compensation to TKC through payments; commits to a coordinated and consultative approach regarding annual project planning, reclamation and preparation of a subsistence harvest plan for affected surface lands; and gives preference to TKC for contracts.

In particular, the agreement provides an exclusive contract to build and operate the Angyaruaq (Jungjuk) Port, an important facility on the Kuskokwim River that will handle the fuel and supplies needed to build and operate the Donlin Mine some 30 miles to the north.

"Donlin Gold's continued presence in the region over the past two decades and the partnership which we have developed through the updated surface-use agreement, represent tremendous opportunities for the shareholders of our 10 villages and the broader Yukon-Kuskokwim community," said TKC President and CEO Carey.

Beyond providing jobs to shareholders living in the region, Novagold President and CEO Greg Lang believes the opportunities provided by Donlin could draw family and friends back to the Kuskokwim.

"Donlin Gold offers significant opportunities for economic stimulus, job creation, and social and community development. More importantly, the project could create unique incentives for people to return to their region by generating economic growth that is consistent with traditional ways of life," he said. "With this opportunity in mind, we encourage the local communities in the Yukon-Kuskokwim region and other interested parties to be active participants in the public meetings."

While the schedule has yet to be finalized, the Army Corps plans to hold roughly 14 public meeting on the Donlin Gold draft EIS from mid-January through April. One of these meetings will be in Anchorage, the rest will be held in communities across the Kuskokwim region.

The Corps also will be accepting written comments on the draft EIS through the end of April. Upon considering and addressing the comments submitted, the agency is anticipating it will be able to finalize the EIS by early 2017 and publish a record of decision later that year.

If gold markets have turned positive, TKC, Calista, Novagold and Barrick could be ready to break ground at Donlin Gold, and after more than 20 years their respective shareholders will be on their way to reap the rewards of owning a piece of one of the world's largest producing gold mines.

 

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