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Vol. 15, No. 22 Week of May 30, 2010
Providing coverage of Alaska and Northwest Canada's mineral industry

Mining News: LNG may be best fuel for Donlin Creek

Confident they can lock in long-term contracts, partners study feasibility of natural gas pipeline to help power huge gold mine

Shane Lasley

Mining News

While many mining companies boast about their pipeline of projects, Barrick Gold Corp. and NovaGold Resources Inc. are studying the feasibility of building an actual pipeline 320 miles, or 515 kilometers, across Alaska to their 33.6-million-ounce Donlin Creek gold project.

If the economics makes sense, natural gas shipped via pipeline from Alaska’s Cook Inlet would replace the diesel proposed by the 50-50 partners in a feasibility study completed in 2008 as the fuel to generate 127 megawatts of electricity needed to power a gold mine at Donlin Creek.

Whether the gas comes from Alaska or some other Pacific Rim supplier, Donlin Creek LLC, co-owned by Barrick and NovaGold, is counting on liquefied natural gas.

“What we know we can count on today is importing LNG and converting it,” said NovaGold President and CEO Rick Van Nieuwenhuyse.

The partners believe natural gas would reduce power generation costs and be a more reliable fuel source than diesel, which would need to be shipped to the site by barge during the summer.

“A natural gas pipeline has the potential to significantly improve operating costs and reduce operating risk,” Van Nieuwenhuyse said. “We look forward to working with Barrick and our Alaska Native partners to advance the Donlin Creek project through permitting and toward a construction decision.”

Abundant LNG

The Donlin Creek partners had originally considered natural gas for powering the mine, but diesel was deemed the more viable option at the time. With an abundance of liquefied natural gas available in the Pacific Rim, the companies now believe this option could be the more reliable, cost effective fuel.

“The LNG market has change dramatically over the past five years, to the point where you can enter into long-term contracts, whereas before it wasn’t very practical.” Van Nieuwenhuyse explained to Mining News during a May 20 interview.

“Good, bad or indifferent the world is sort of awash in gas. There are literally about seven different places around the Pacific Rim that you can enter into long-term deliverable contracts for LNG,” he added.

Though Donlin Creek LLC has multiple reliable sources, the developers would like to be able to use in-state gas, if possible, he said.

“If the state brings the gas pipeline down from the Slope, if it becomes a reality, we’d just as soon buy gas from there. If additional drilling is done in Cook Inlet and additional supply is available, that is obviously another potential source,” Van Nieuwenhuyse said.

Industrial base-load for Alaska

New economic sources of gas in Cook Inlet have been diminishing to the point where residents of Southcentral Alaska have been warned that there may not be enough gas to go around during the peak usage of the coldest days of winter.

The NovaGold leader said a base-load of a year-round industrial user like Donlin Creek could help spur development of additional Cook Inlet gas, a bullet line from the gas fields of Alaska’s North Slope or even imports of LNG from a Pacific Rim supplier to supplement the Alaska market.

“We are really excited about the opportunity here. We think it is a real positive step towards the project, and I think it compliments some of the issues Anchorage is facing with the lack of available gas. This puts an additional base-load throughout the year that helps with the summer-winter fluctuations,” Van Nieuwenhuyse explained.

The partners also would like to be able to supply the communities in Southwest Alaska, a region with some of the highest energy costs in the United States, but there are regulatory hurdles that would need to be overcome before that could become a reality.

“We certainly don’t want to become a utility ourselves, but there may be a secondary step there that will facilitate that,” the NovaGold CEO explained.

2010 field program

The route proposed for the 12-inch underground pipeline is to head north from the Beluga area on the northwest side of Cook Inlet and pass within about 10 miles, or 16 kilometers, of the community of Skwentna before heading northwest through the Alaska Range and then turning west for the final 170-mile, or 275-kilometer, leg to the mine site.

About 70 percent of the proposed route traverses State of Alaska lands, and the remainder of the pipeline would cross federal and Alaska Native lands.

Meeting with state, federal and local land management and resource agencies earlier this year, Donlin Creek LLC applied for the permits needed for the 2010 field program.

“The concept of the pipeline is it’s a buried pipeline for the entire route, even where it would cross the two significant rivers; the Skwentna and the Kuskokwim. There is a fair bit of geotechnical information that is needed around the rivers, specifically,” Van Nieuwenhuyse said.

The 2010 work program will complete the majority of the environmental and engineering studies required to review the pipeline option and revise the feasibility study based on on-site power generation using gas.

“This year’s program is really focused on the collection of the information and then next year’s program will be focused on integrating that information into the overall feasibility study – the feasibility study for the pipeline and then how that integrates with the overall project,” he said.

Partners boost 2010 budget

In order to complete the environmental and engineering studies needed to update their feasibility study the partners have added US$18.7 million to the 2010 Donlin Creek budget, bringing the total spent this year on the gold project to US$47 million.

Donlin Creek LLC said the capital cost of the pipeline would be partially offset by cost savings from elimination of a wind cogeneration facility, a shorter access road and a significant reduction in requirements for diesel storage.

The potential impact of the pipeline option on capital and operating costs will be addressed in a revision to the project feasibility study, which is due out sometime in the second-half of 2011.

“We will make a decision on either the diesel or gas scenarios. The economics on this has to make sense, but currently it is very favorable to gas,” Van Nieuwenhuyse said.



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