The mining newspaper for Alaska and Canada's North

A great Alaska AIDEA

Development authority, mining sector often meet on a yet-to-be-built road - North of 60 Mining News – April 1, 2018

Born from an idea to create a vehicle that could provide Alaska businesses lower interest rates offered by tax-exempt financing, the Alaska Industrial Development and Export Authority, or AIDEA, has been doing its part to create jobs and bolster Alaska's economy for five decades.

"Fifty years ago, the Alaska State Legislature created the Alaska Industrial Development and Export Authority, to develop, encourage, and improve the economic potential and welfare of the people of Alaska," Gov. Bill Walker penned in AIDEA's annual report. "Since then, AIDEA has sustained that mission and provided a variety of dynamic programs to finance Alaska businesses, nonprofit groups, and community projects."

Though it was created by the Alaska Legislature in 1967, AIDEA is a public corporation rather than a traditional state agency dependent on state funding. This enables the authority to operate more like the private sector rather than the public.

"We are not funded by the state – our revenues come from financing large projects like Red Dog, from our highly successful loan programs with Alaska businesses, and from our investments," AIDEA External Affairs Officer Karsten Rodvik told Mining News. "These revenues not only cover our operational expenditure; we also pay an annual dividend of up to 50 percent of our revolving fund net income to the State of Alaska general fund."

The quasi-state-owned authority's careful investments paid a US$12.8 million dividend to the state's general fund in 2017 and has put more than US$392 million into Alaska coffer over the past 20 years.

The biggest dividend paid to Alaska, however, are the roughly 1,960 jobs at AIDEA supported projects across the entire breadth of the state, from the Red Dog Mine in the Northwest to the Ketchikan Shipyard in the Southeast.

"AIDEA is proud of its investments in Alaskans and in Alaska through loans, bonds, and other financing tools, which support businesses and generate hundreds of jobs for the people of Alaska," AIDEA CEO and Executive Director John Springsteen penned in the authority's annual report.

The Red Dog model

While the various services offered by AIDEA touches on nearly every sector of Alaska's economy, the authority's financial wherewithal has been particularly beneficial to the state's mining sector.

AIDEA and Alaska's mining sector often meet on a yet-to-be-built road connecting the state's rich mineral deposits to world markets.

"Developing transportation corridors, port facilities, and access to affordable energy is key to spurring natural resource development," reads AIDEA's 2017 report, "AIDEA is ready to partner with project proponents to develop the state's critical infrastructure needs."

The Delong Mountain Transportation System, a 52-mile road and port facilities constructed to deliver zinc mined at Red Dog to world markets, is among the most successful AIDEA- funded project to date and a model for future partnerships.

Over the years, the development authority has recouped the US$267 million it invested in building and maintaining DMTS and pays a dividend to state coffers from the profits it gets from ongoing tolls.

Each year, roughly 5 percent of the world's mined zinc supply traverses DMTS and in 2017 the Red Dog Mine delivered roughly 1.2 billion pounds of zinc and 245.4 million lb of lead over the road and port and on to world markets.

While delivering 5 percent of the world's zinc supply is impressive, the benefits this delivery provides Northwest Alaska and the state as a whole is what fulfills AIDEA's mission.

Liz Cravalho, vice president of external and government affairs, NANA Regional Corp., said Red Dog is a prime example of the benefits mining can bring to the local governments, businesses and residents of rural Alaska.

"The mine was an opportunity to responsibly develop resources in this area of the state and provide economic development to the communities," she said. "The mine continues to have a significant impact on the NANA region."

For NANA, the economic benefits begin with its ownership of the lands that host the Red Dog deposit and mine facilities.

As a result of this ownership of the largest zinc producing orebody on the planet, NANA receives healthy royalty payments on the net proceeds from the metals produced at Red Dog.

In October of last year, these royalties increased to 35 percent and are set to increase by 5 percent every five years up to a maximum of 50 percent of the net proceeds.

So far, NANA has received roughly US$1.3 billion in net proceeds payments. Of this substantial flow of cash from Red Dog, the Northwest Alaska Native corporation has distributed more than US$820 million to other regions of Alaska and at-large shareholders via the 7(i) sharing provisions of the Alaska Native Claims Settlement Act.

The 7(i) provision of ANCSA requires the original 12 Alaska Native regional corporations to share 70 percent of their revenue from resource development on their ANCSA-conveyed lands with the other regions.

This means that AIDEA's DTMS investment is providing an economic boost to Alaska Native communities across the state.

Red Dog also is the primary "taxpayer" in the Northwest Arctic Borough, a 24.3-million-acre expanse of Northwest Alaska that mirrors the NANA region.

The Red Dog Mine technically does not pay a tax to the Northwest Arctic Borough. Instead, the world-leading zinc producer pays the borough a payment in lieu of taxes. (PILT).

So far, Red Dog has paid roughly US$155.6 million in PILT payments to the Northwest Arctic Borough and is slated to pay roughly US$23 million to US$30 million annually, according to a recent 10-year agreement.

With Teck recently announcing plans to continue operations at Red Dog until at least 2031, these Alaskan economic benefits spurred by AIDEA's investment are set to continue.

Connecting Ambler Mining District

Following the same model that has proven so successful for Red Dog, AIDEA is now advancing a road that would connect the Ambler Mining District, another metals-rich region in Northwest Alaska, to world markets.

The Ambler Mining District Industrial Access Road, the official name of the proposed 211-mile transportation corridor, would run west from the Dalton Highway along the southern foothills of the Brooks Range to the Ambler Mining District near the Arctic deposit on the Upper Kobuk Mineral Projects, a large land package being developed by Trilogy Metals Inc., South32 Ltd. and NANA.

Arctic and the multiple other high-grade deposits in the Ambler District would have been developed years ago if they were not so far off the beaten path.

A prefeasibility study published for Arctic earlier this year details plans for a financially robust mine that is expected to produce 1.9 billion lb of copper, 2.4 billion lb of zinc, 405 million lb of lead, 367,531 ounces of gold and 40.2 million oz of silver over an initial 12-year mine life.

Trilogy and AIDEA entered into a memorandum of understanding in 2015 that paves the way for the development authority to investigate various ways to fund the construction and maintenance of the Ambler Road and create the framework by which this investment would be paid back from mines developed at the road's terminus.

Though the exact cost of building the Ambler Road has not been finalized, the Arctic PFS estimates US$300 million.

Ideally, the Ambler road and Arctic Mine would be completed about the same time. To keep the road side of this development on schedule, AIDEA submitted applications in 2016 for rights-of-way, permits and related authorizations needed.

The public scoping phase of the Ambler Road wrapped up in January and a draft environmental impact statement for the industrial access is now underway.

"Solid progress was made with the Ambler Mining District Industrial Access Project through the selection of the third-party contractor to assist BLM in the Scoping Phase of the Environmental Impact Statement process, and with the National Park Service Environmental and Economic Assessment study under ANILCA," stated Chairman Dana Pruhs.

With road access, AIDEA sees the potential of at least four mines being developed in the Ambler District – Arctic and Bornite at the Upper Kobuk Mineral Projects; Smucker to the west; and Sun to the east.

It is estimated that the construction of these mines would provide 5,933 jobs and pay more than US$457 million in wages. Once built, these mines would provide 3,186 direct, indirect and induced jobs and pay some US$325 million in annual wages.

NANA, Northwest Arctic Borough and state coffer would also benefit greatly from the royalties, taxes and PILT flowing from the Ambler Mining District.

Gateway to the Yukon

Alaska mining projects are not the only ones benefiting from AIDEA infrastructure investments. Yukon mines are shipping concentrates from the Skagway Ore Terminal, a facility originally built in 1968 to accommodate ore shipments form the territory's Faro lead-zinc mine.

Much like White Pass during the Klondike Gold Rush, Skagway and the ore terminal serve as a gateway to Yukon.

AIDEA purchased the Skagway Ore Terminal from White Pass Railway in 1993 but closed it in 1997 after the Faro Mine ceased operations due to unfavorable market conditions.

A decade later, the ore terminal resumed shipping concentrates from the Yukon, this time from Capstone Mining Corp.'s Minto Mine.

Capstone, which shipped concentrates containing roughly 16,000 metric tons of copper, 171,000 oz of silver and 25,000 oz of gold in 2017, signed a lease that extends its tenancy at the ore terminal to 2023.

Great Britain-based Pembridge Resources is currently in the process of acquiring Minto and plans to implement a number of strategies aimed at significantly extending the current four-year mine plan.

Other projects in the Yukon and Alaska's Eastern Interior could benefit from shipping ore through Skagway and AIDEA is engaged with potential users of the terminal.

Once in production, the Selwyn zinc mine in eastern Yukon could be a major user of the Skagway Ore Terminal.

Selwyn Chihong Mining Ltd. expects this operation to produce 2,500 metric tons of zinc concentrate and 600 metric tons of lead concentrate per day, or roughly 1.1 million metric tons of concentrates per year and has indicated it plans to ship them from Skagway.

Nickel Creek Platinum Corp. (formerly Wellgreen Platinum Ltd.) has indicated its interest in shipping concentrates from the PGM-Nickel mine through Skagway in route to overseas markets.

Critical rare earths infrastructure

AIDEA's financial wherewithal could be the leverage Alaska needs to become a domestic source for minerals deemed critical to the United States.

The industrial authority is already working with two potential critical mineral producers in the state – Ucore Rare Metals Inc. and Graphite One Resources Inc.

In 2014, the Alaska Legislature authorized AIDEA to invest up to US$145 million to help finance the development of a mine at Ucore's Bokan Mountain rare earth deposit on Prince of Wales Island as well as a processing facility for the operation, with the idea of potentially building this facility near Ketchikan.

In February, Ucore announced plans to build its first Strategic Metals Complex, a separation plant to produce high purity rare earths from REE-bearing feedstock sourced from around the globe, near Ketchikan.

In addition to being a port town on the Pacific Rim, the legislative authorization to finance such a facility provides Ketchikan a big advantage over other locales considered in the United States.

"A significant portion of this proposed financing is intended for the development of a proximal rare earth element separation facility, and our recommendation will be for the construction of this component to be placed in Ketchikan, just 50 kilometers (32 miles) northeast of Bokan and accessible via marine transport," said Randy Johnson, a Ucore advisory board member and Ketchikan resident.

Johnson, former president of Alaska Ship & Drydock, was a key player in developing the Ketchikan Shipyard through a unique and award-winning public-private partnership with AIDEA.

As an investor in both Ucore and the metals separation technology that company has developed, he also was a strong advocate for basing the first SMC in Ketchikan, a community that he has helped revitalize in recent years.

"We're pleased that Ketchikan has been selected from among competing locales," said Johnson.

Once engineering, business and construction plans for the state-of-the-art Alaska SMC are completed, Ucore plans to submit them to AIDEA for consideration under the Legislature's authorized funding package.

"Ucore is in a position to construct a state-of-the-art rare earth separation facility that is neither energy-intensive nor a threat to air and water quality," McGillivray added. "We have the opportunity to permit and construct the first large-scale REE separation facility using clean-green molecular recognition technology, in an environmentally sustainable and safety conscious manner."

Ucore plans to be producing rare earth elements at its Ketchikan Strategic Metals Complex in 2020.

Graphite Creek funding

AIDEA could also get authorization from Alaska Legislators to issue up to US$80 million in bonds to help finance the costs of infrastructure and development of a mine at Graphite Creek, a project on the Seward Peninsula with the potential to be a significant source of graphite needed in lithium-ion batteries.

Located about 35 miles north of Nome, Graphite Creek hosts 744,000 metric tons of graphite in indicated resource, a deposit that accounts for only a small section of the larger graphite mineralization that spans some 11 miles of the Kigluaik Mountains

A preliminary economic assessment prepared for Graphite One Resources Inc., the company with its sights set on developing Graphite Creek, outlines plans for a mine that would produce 60,000 metric tons of graphite concentrates per year.

Under the legislation introduced by Olson, AIDEA would own and operate the access road, port improvements, power generation facility and related infrastructure for the Graphite Creek project site.

The concentrates produced at the Seward Peninsula deposit would be shipped to an advanced material processing facility that is expected to produce roughly 42,000 metric tons of coated spherical graphite and almost 14,000 metric tons of purified graphite powders per year.

In a report published last May, AIDEA identified four Southcentral Alaska locations – Homer, Kenai, Port Mackenzie and Seward – that could host this facility to produce the spherical graphite needed in lithium-ion batteries.

Currently, the U.S. relies on foreign sources for 100 percent of its natural graphite and imported 50,000 metric tons of graphite last year to meet its domestic needs.

Tesla's Gigafactory, an enormous lithium-ion battery manufacturing plant in Nevada, is expected to need nearly twice this much graphite when it reaches full production capacity, expected late 2018 or early 2019.

"When the plant is complete, it will require 93,000 tons of flake graphite to produce 35,200 tons of spherical graphite for use as anode material for lithium-ion batteries," the U.S. Geological Survey penned in its 2018 minerals report.

In 2017, principal U.S. import sources of natural graphite were, in descending order of tonnage, China, Mexico, Canada, Brazil, and Madagascar.

Sen. Olson said the Graphite One project has the potential to be a domestic source for the growing graphite demand in the U.S. and boost the Seward Peninsula economy in the process.

"The Seward Peninsula Kigluaik Mountains has a significant graphite surface deposit that can lend a positive impact on the local economy," he said. "This is an opportunity to meet those economic needs, create more jobs in rural Alaska, and supply the United States with a local source of graphite."

Senate Bill 203 has been referred to the Community & Regional Affairs and Finance committees.

With the legislative authorization, AIDEA could help Alaska become a significant source for graphite while fulfilling the mission the Alaska Legislature gave it in 1967: "To promote, develop, and advance economic growth and diversification in Alaska by providing various means of financing and investment."

EDITOR'S NOTE: Randy Johnson's title was corrected in the article to former president of Alaska Ship & Drydock.

Author Bio

Shane Lasley, Publisher

Author photo

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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