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Vol. 15, No. 32 Week of August 08, 2010
Providing coverage of Alaska and northern Canada's oil and gas industry

AK-WA Connection 2010: Mining supports Alaska-Washington trade

Industry provides much-needed boost to state’s economy, especially in rural communities where jobs and opportunities are scarce

Rose Ragsdale

Alaska-Washington Connection

Mining is an increasingly bright spot in the Alaska economy and nowhere is the impact of this vibrant sector more pronounced than among businesses in the Alaska-Washington trade.

Shaking off effects of the recession, the state’s mining sector provided 5,200 direct and indirect jobs to Alaskans in 2009. Mine workers took home an average of $83,000 each to 120 mostly rural communities where few other jobs are available.

Research by Juneau-based McDowell Group Inc. shows Alaska mines and mine projects shelled out $320 million in payroll in 2009 along with nearly $50 million in taxes to state and local governments and $40 million in payments to Alaska Native corporations.

This includes mine exploration and development, and mineral production activity. Mining explorers spent $160 million in Alaska in 2009. Down 54 percent from a year earlier, the expenditures brought the sector’s total since 1981 to $2 billion. Developers, meanwhile, spent $262 million on mine construction in Alaska. Though it reflects work at six developing and existing mines, the spending shrank 34 percent from 2008.

Alaska’s mines produce zinc, lead, gold, silver, coal, as well as construction materials, such as sand, gravel, and rock. More than 120 active rock quarries and sand and gravel operations tallied $106 million in production value in 2009. In addition, more than 175 placer mines produced 54,000 ounces of gold.

Additional millions spent for contractor services and vendor supplies supported an industry that logged more than $2.5 billion in total mineral production value and $750 million in mineral exports last year.

Transportation companies like Lynden Inc., which began shipping goods to Alaska in 1954, are integral parts of the support framework that miners rely on statewide.

Working singly and in groups, Lynden’s family of 17 companies, including Alaska Marine Lines, Lynden Air Cargo, Lynden International and Lynden Transport, perform as shipping and project logistics tag teams, often on short notice, to meet project deadlines for their customers.

Renewed infrastructure focus

A recent focus on infrastructure development, including a project that will extend the Alaska Railroad 80 miles to the east from Fairbanks and to tidewater at Point MacKenzie across Cook Inlet from Anchorage bodes well for the future of Alaska mining.

The railroad has $40 million earmarked for the project, and working with federal, military, state and private partners, plans to begin construction of the Northern Rail Extension from Fairbanks to Delta Junction in 2010. The project, which has been approved by the federal Surface Transportation Board, is expected to cost about $600 million.

Depending on the route involved, the Port MacKenzie Rail Extension, a joint proposal of the Alaska Railroad and the Matanuska-Susitna Borough will involve 30 to 45 miles of new rail line extending from Port MacKenzie to the railroad’s main line at some point between Meadow Lakes and north of Willow. The railroad has set aside $50 million for this project.

Both extensions should spur mining exploration and development in Alaska, for base metals in the north and coal in the Mat-Su area, said Steve Borell, executive director of the Alaska Miners Association.

“Every extension of that railroad makes (mining) projects make more economic sense. This should be a real kick in the pants for the industry in those areas,” Borell said.

Alaskans are beginning to recognize that mining has great potential for economic development and new jobs all over the state. Other major industries are on the decline.

One sign of this new awareness is a recent allocation of $13 million in the state’s fiscal year 2011 capital budget by Gov. Sean Parnell for the Roads to Resources program, a long-standing effort to expand infrastructure to parts of the state with hardrock minerals, oil, natural gas, coal and other resources. The state will study a 75-mile road connecting the Dalton Highway to Umiat, a staging area on the Colville River as well as a proposed 500-mile route from the Elliot Highway in Manley Hot Springs to the Nome Council Road generally following the Yukon River.

The former aims to open access to oil and natural gas prospects in the southern Foothills area of the Brooks Mountain Range, while the latter would create a transportation corridor into western Alaska ideal for seeking new mineral deposits. As the most direct route from Fairbanks to Nome, it also would allow for future expansion to known mining deposits to the north and south like Ambler and Donlin Creek.

“Clearly Alaska suffers for lack of infrastructure. When much of the West was developed, there was no such thing as an airplane,” Borell said. “(The advent of) air travel resulted in Alaska not getting the roads and rails that it really needs to develop.”

Borell said a rail extension from Nenana up to the Brooks Range and then to Ambler would generate considerable mining exploration and development activity.

“That’s the piece the state has appropriated money to study this year – an access corridor with one or more of rail, road and/or power line,” he explained.

New frontiers for services

Colville Inc. is one service company that stands to benefit from infrastructure development to the North. The company provides solid waste and recycling services across the North Slope of Alaska, including Kuparuk, Alpine, the National Petroleum Reserve-Alaska west to the Ikpikpuk River, and coastal waters up to 3 miles offshore of those regions. It also manages municipal solid waste, construction debris and recyclables in the Dalton Service Area, which extends from Prudhoe Bay south to Atigun Pass and includes the highway corridor, service roads, pump stations and areas within 5 miles of each side of the roadway.

Arctic Foundations is another Alaska company that could cash in on its long and successful record of providing crucial services in foundation construction and technology for frozen soils and frozen barriers. The company analyzes, designs and manufactures heat-removal and ground-freezing systems that enhance the engineering characteristics of soil and rock. While Arctic Foundations Inc. originally developed its freeze barrier technology to give load-bearing strength to soils during excavation activities and construction of subsurface structures, the technology of freezing soils also is beneficial as a containment technology. With patented systems designed for the long-term, Arctic Foundations also notes that its systems may well outlast the structures they are supporting or protecting.

21 years of spending

In the mining sector, Teck Alaska is one of the state’s major economic engines, employing 390 workers and 95 contractors to mine and transport concentrates from the Red Dog Mine near Kotzebue. Red Dog, the world’s largest producer of zinc concentrates, marked 20 years of operations in 2009. The mine also produces substantial quantities of lead concentrates.

In addition to more than $700 million in capital investment, Teck has spent more than $1 billion in Alaska on payroll, taxes and payments to Alaska Native corporations.

From 1990-2007, total direct and indirect economic impacts of the mine to the regional and state economy were $530 million. In 2007 alone, the mine provided $230 million in federal and states taxes. The mine is the sole taxpayer in the Northwest Arctic Borough, paying nearly $11 million in lieu of taxes in 2007.

In addition, Red Dog spends more than $100 million each year purchasing goods and services from Alaska suppliers.

Teck Alaska also has contracted to use a state-owned 52-mile, 30 foot-wide, all weather industrial haul road, a shallow water dock, offshore conveyor concentrate loading facility, fuel distribution and storage systems, and other port facilities called the DeLong Mountain Transportation System until 2040.

The DMTS road, designed to accommodate multiple users, leads from the mining district that includes the Red Dog Mine to a port site located on the Chukchi Sea, about 12 miles south of Kivalina. Initial construction was completed in 1990 and port expansion in 2000.

Foss Maritime Co. of Seattle developed and built self-loading barges to pick up Red Dog’s ore and lighter it to the ships anchored offshore from the mine’s port facility. 

Impact of Interior mines

The Usibelli Coal Mine in Healy, Fort Knox gold mine near Fairbanks and Pogo gold mine near Delta Junction are mainstays of Alaska’s economy in the Interior.

At Usibelli, the family-owned operation is Alaska’s only operating coal mine. In 2009, its 125 employees posted record coal production of 1.8 million tons. Usibelli fueled 40 percent of Interior Alaska’s electricity and shipped 40 percent of its output to tidewater via the Alaska Railroad in 2009 for export to Asia and South America.

Fairbanks Gold Mining Inc., a Kinross Gold Corp. subsidiary, operates the Fort Knox Mine where 500 employees, plus 350 contractors, produced roughly 350,000 ounces of gold in 2009. In production since 1996, Fort Knox is the single largest property taxpayer in the Fairbanks North Star Borough.

About 90 miles to the east, the Pogo Mine reached a production milestone of 1 million ounces of gold in 2009 after more than three years of operation. The mine, now owned by two Sumitomo subsidiaries, employed 297 workers and 97 contractors and paid more than $29 million in wages in 2009.

Suppliers, including Denali Industrial Supply and Jackovich Industrial Supply count these mines as important and reliable customers.

For 26 years, Denali Industrial Supply has provided Alaska mines with fasteners, nuts, bolts and piping systems that are integral to mining operations.

“We were here when Fort Knox and Pogo were built, and we’ve been doing business with Teck Alaska since 1989 when Red Dog went into operation and with Usibelli since 1987,” said Denali Industrial co-owner Gary Swoffer .

The store stocks nuts and bolts up to 2 inches in diameter, mechanical grinding discs, power tools and other supplies needed by the mines. It is a distributor of mechanical jointing systems and ground control technology designed to stabilize underground mining systems.

In Alaska, Denali Industrial also is the largest distributor of Loctite products, a line predominantly used by the mines, Swoffer said.

With 18 employees, the supplier maintains a $1.5 million to $2 million inventory for its customers’ convenience.

“It’s definitely easier for the mines in the Interior to come to us, and we coordinate with a company in Seattle to ship our products to other mines in Alaska,” Swoffer said. “As a result, at the remote mine sites, it’s no different than ordering from us here in Fairbanks.”

Denali Industrial also delivers products by truck to Fort Knox twice a week, to Pogo once a week and to various Interior construction projects as needed.

Swoffer said another advantage for Denali Industrial is that it has supplied the mines for so long that often it can successfully anticipate what the operators will need before they need it.

After 40 years experience in the North, Buz Jackovich at Jackovich Industrial and Construction Supply is another Interior vendor who has become an expert at industrial solutions. Jackovich specializes in supplying customers all types of hose, cables, wear parts, grease and many other products that work best in Alaska’s harsh cold temperatures and any other extreme application. The supplier has locations in Fairbanks, Anchorage and Wasilla.

Specialty service companies also look to mining for ongoing business.

Emerald Alaska, for example, provides Usibelli, Fort Knox and Pogo with fluid and recycling services.

“We provide maintenance and cleaning of their settling ponds and lagoons, and we clean those out on a regular basis,” said Paul Nielsen, Emerald’s sales manager. “We do it with dredges, pumps and filtration. It helps them maintain their actual productivity as well as keep their operations in regulatory compliance.”

Nielsen said Emerald Alaska helps industry comply with changing regulations that affect their ability to do business.

“Refiners and oil and mining companies tend to be under increased regulatory scrutiny for water and air emissions. Expanded permits and permits to operate are problems for any resource development in Alaska,” he said. “We offer solutions to problems.”

Nielsen also observed that a water treatment pond or lagoon is the lifeblood of a mine.

“Management of water at a mine or refinery is the key to their entire survivability,” he said. “There is a distinction between waste and the waste they talk about at a mine. Often mine waste is the material that does not have minerals in it and not material that should be disposed of. I wish we could get the general public to understand that mines are some of the cleanest places in industry.”

Nalco Co. is another specialty firm that serves the mines.

“We work with Fort Knox, Pogo, Red Dog, Usibelli and the Kensington and Greens Creek mines in Southeast Alaska,” said Dana Novak, who heads Nalco’s chemicals division in Alaska.

Part of an international company better known for its work with the petroleum industry, Nalco handles chemical programs and such areas as water clarification and scale that require expert knowledge of chemical processes.

“We act as onsite consultants. We’re there to partner with them to help run the mines more efficiently and maintain it for the long-term,” explained Novak, a chemical engineer who moved to Alaska from Seattle after attending the University of Washington.

Nalco employs more than 19 people in Alaska; 13 work with the oil industry and four work with refineries and mines. Additionally, Nalco employs drivers for trucks in its chemical delivery system and two workers staff administration positions, Novak said.

The mines also call on service firms like Opti Staffing Group, which specializes in identifying and placing skilled job candidates. Rachel Collins, Opti Staffing’s branch manager in Anchorage, said her firm has worked with Alaska mining companies to place administrative personnel in their offices.

Mining resurgence in Southeast

Greens Creek Mine, an underground mine located on Admiralty Island in Southeast Alaska, employed 329 workers plus contractors as of Dec. 31, 2009. The Greens Creek orebody, which has been mined for nearly 20 years, contains silver, zinc, gold and lead. In 2008, Hecla Mining Co. became a 100 percent owner of the mine and embarked on programs of increased production and exploration. In 2009, Greens Creek ore was processed at an average rate of approximately 2,167 tons per day.

Historically powered completely by diesel generators, the mine expects to receive most, if not all, of its power in 2010 and for the foreseeable future by purchasing excess hydroelectric power from Alaska Electric Light and Power Co., the local utility. The mine has purchased a portion of its power needs from AEL&P since 2006.

The Juneau area also is home to Alaska’s newest mine, the Kensington Gold Mine, where Coeur d’Alene Mines Corp. began production June 24, nearly a month ahead of schedule.

The underground mine will produce 50,000 ounces of gold during the remainder of 2010 and is expected to produce about 125,000 ounces of gold annually over an initial 12.5-year mine life. Coeur Alaska will employ nearly 200 workers during operations at Kensington, including shareholders of local Alaska Native corporations.

Greens Creek and Kensington quickly hired 11 newly-trained miners who completed a state-run entry level underground mining course in June. The trainees are residents of Southeast communities of Klawock, Sitka, Gustavus, Ketchikan and Juneau.

Potential bonanza in Southwest

For more than 100 years, mining has been a small but very important sector in the Yukon-Kuskokwim Region of southwestern Alaska, providing critical cash-paying jobs to supplement subsistence as well as supplies and access to this roadless area the size of Ohio.

“A lack of energy and transportation infrastructure, in turn, has severely limited the economic growth and quality of life for many of our smaller western communities and villages,” said Christine Klein, chief operating officer of Calista Corp., the Alaska Native regional corporation for the Yukon-Kuskokwim region. “The Calista region of Alaska has the greatest number of small villages, but has been virtually forgotten or ignored with little infrastructure, few if any connecting roads, deteriorating airport runways and poorly maintained schools. This is likely due to the young age of the state, high construction costs, poor soil conditions and lack of a dedicated state funding program for maintenance and transportation.”

The renewed interest in the numerous mines in the Calista region and their development will improve the infrastructure and economic benefits in the area, in Alaska and in the Pacific Northwest, Klein predicted.

Employment opportunities for the people of the Calista region are limited. Alaska’s jobless rate hovers around 9.6 percent but unemployment in the Y-K region can be as high as 22.8 percent.

“We see mining and other business investments in our region as very positive opportunities to help us in our statewide efforts to improve infrastructure, reduce transportation costs, increase business and thus improve the quality of life for all of our citizens,” Klein said. “Working on mining projects has provided good paying jobs in an area where jobs are scarce. And you don’t have to work at the project to benefit from the jobs created there – the dollars earned from working at the site are circulated and re-circulated, and that enhances the entire region’s economy.”

The Donlin Creek project, located about 240 miles west of Anchorage on land owned by Calista and The Kuskokwim Corp., is an advanced gold exploration project operated by Donlin Creek LLC, a joint venture with NovaGold Resources Inc. and Barrick Gold Corp.

The Donlin Creek project is currently advancing from primarily an exploration project to a development project with construction targeted to begin in 2012 and production in 2015.

During the project’s construction phase, employment is expected to mushroom to between 1,500 and 2,000 jobs; once in production, Donlin Creek LLC plans to employ 600-800 people during a projected 20-year mine life.

Calista-owned Chiulista Services, Inc., which provides camp services at Donlin Creek, is charged with hiring and training people from local communities to work at the mine project.

A couple hundred miles to the southeast of Donlin Creek lies the giant Pebble copper, gold and molybdenum deposit. Northern Dynasty Minerals Ltd. and Anglo American plc, 50-50 partners in the Pebble Project are working toward development of a huge mine that could employ more than 1,000 people when it goes into production. So far, more than $400 million has been invested the venture.

Pebble, like Donlin Creek, is a potential game changer for the economy of the Bristol Bay region of Alaska, an area known for world-class salmon fishing and scenic national parks but little industry.

Development of the Pebble deposit also will likely provide hundreds of millions of dollars in yearly operating expenses, a multibillion-dollar capital investment, state and local taxes and royalties and significant third-party services from contractors and vendors.

A Pebble mine also would require a low cost, reliable energy source. John Shively, CEO of the Pebble Partnership, has indicated a desire to work with Alaska officials to find a way to bring low-cost power to the region.

“One of the goals of our partner, Anglo American, is about facilitating sustainable development so that businesses can prosper beyond the life of the mine – thus the approach to contracting will have a goal of providing sustainable opportunities,” said Pebble spokesman Mike Heatwole.

Shively also has vowed to make regional hire a top priority for Pebble in hopes that the project’s regional work-force statistics will meet or exceed the shareholder hire statistics achieved in the past 20 years at Red Dog.

“We expect to have a work-force development plan by the end of this year,” Heatwole said. “It’s a delicate balance between wanting to help people now and not yet having a mine plan – kind of expectation management.”

The Pebble Partnership’s initiatives include a scholarship program and a core driller apprentice program, the first of its kind in Alaska. Some 15 apprentices representing many villages in the Bristol Bay Region, including Aleknagik, Ekwok, Iliamna, King Salmon, Kohanok, Koliganek, Nondalton and Togiak, recently completed more than 140 hours of classroom training and 3,000-4,000 hours of on-the-job training in the program.

Denali Industrial’s Swoffer expects support companies will grow along with Alaska’s mining industry in the future.

“If Pebble goes (into construction), we would probably open another store in Anchorage to serve the Pebble Partnership, and it would help us serve the mines in other areas of Alaska,” he said. “There is also a strong possibility we will have another gold mine up at Livengood before too long.”

AMA’s Borell agrees. “During the next 18 months, six mining projects in Alaska will be at a stage where they could make decisions to begin construction of major mines. Now is the first time that such a statement could have been made since 1902!” he said. “There are no guarantees. Each project has significant design, permitting, market and/or financing challenges that must be overcome, and the owners are working on these remaining challenges.”

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