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Vol. 19, No. 34 Week of August 24, 2014
Providing coverage of Alaska and northern Canada's oil and gas industry

AK-WA Connection 2014: Mining sector sees ups and downs in 2014

Alaska offers potential boost to Southeast VMS, REE projects as state’s established mines hold steady, look to expand production

Rose Ragsdale

Alaska-Washington Connection

Though the pace of mineral exploration has slowed considerably in Alaska in recent months, the state’s mining sector, as a whole, appears to be gaining some momentum, especially among mine development projects that could get significant financial assistance from the state.

Whether it’s the Niblack Project LLC and the Bokan-Dotson Ridge rare earth elements project in Southeast Alaska or the 39 million ounce Donlin gold project in western Alaska, the sector is seeing an aggressive push toward development of new mines across the state.

Industry activity across the sector, meanwhile, remains relatively subdued this year, due mainly to nearly a two-year slump in capital markets. While some Alaska projects are moving forward, many have been forced to cut operating budgets and downsize aspirations for the 2014 field season to match the pinched purses available for work programs. And at least one mine project’s potential advancement was abruptly curtailed by the U.S. Environmental Protection Agency.

Still, mining continues to contribute substantially to Alaska’s economy, especially in rural communities where high-paying employers are scarce.

“Mining provided about 4,600 direct jobs and 9,100 indirect jobs and a payroll of over US$460 million - that is a lot of good in this state; that is a lot of families making their payments; that is a lot of families being fed,” Alaska Gov. Sean Parnell told an audience at the Arctic International Mining Symposium in Fairbanks in April.

Pebble, Donlin challenges

Northern Dynasty Minerals Ltd. said its Pebble Limited Partnership has filed suit in U.S. District Court for Alaska to halt a regulatory process recently initiated by the EPA under the Clean Water Act and designed to prohibit development of the enormous Pebble copper-gold-molybdenum project in Southwest Alaska. The Partnership complaint asserts that, in the absence of a permit application by Pebble Limited Partnership, EPA’s Section 404(c) regulatory process initiated Feb. 28, exceeds the federal agency’s authority under the Clean Water Act and violates the Alaska Statehood Act among other federal laws. The State of Alaska agreed, also filing suit as an intervening party.

“Perhaps the most troubling aspect of the EPA seeking to veto a hypothetical project before any permit application has been filed, is that it sets precedent for the EPA to take land anywhere in the United States and prematurely limit development of a valuable resource,” said Alaska Attorney General Michael Geraghty.

EPA’s unprecedented action is now opposed by not only the Pebble Partnership and the State of Alaska, but also by a growing list of Alaska businesses, Native groups and civic organizations who have called on the EPA to stop its unprecedented, unilateral and pre-emptive regulatory process.

Donlin Gold LLC, the operating company equally owned and supported by subsidiaries of NovaGold Resource Inc. and Barrick Gold Corp., that is developing the huge Donlin gold deposit located in the remote Yukon-Kuskokwim Region of western Alaska, has submitted a right-of-way lease application for a proposed liquefied natural gas pipeline from Cook Inlet to the site of the proposed Donlin mine project. The 14-inch diameter pipeline would originate at the west end of the Beluga natural gas field about 30 miles northwest of Anchorage and run 315 miles to the proposed mine site.

The partners hope to begin pipeline construction in 2016, dependent on receipt of appropriate authorizations, with the goal of delivering liquefied natural gas to the mine site by mid-2019.

A feasibility study completed in 2011 envisions a 53,500-metric-ton-per-day mill at Donlin, producing an average of 1.1 million ounces of gold annually at a cash cost of $585 per ounce for 27 years. The mine would consume roughly 85 megawatts of electricity, enough power for a city of some 120,000 people. The U.S. Army Corps of Engineers is currently preparing a draft environmental impact statement, which it expected to publish in late summer 2014.

Mine development catalyst

Parnell has signed into law a bill authorizing the Alaska Industrial Development and Export Authority to provide up to $125 million in financing for infrastructure and construction costs at the Niblack volcanogenic massive sulfide project in Southeast Alaska. Niblack, which is southwest of Ketchikan on Prince of Wales Island, is owned by Heatherdale Resources Ltd.

The bill allows AIDEA, acting as an economic development catalyst, to issue bonds to help finance the cost of constructing key infrastructure, including facilities at the project site on Prince of Wales Island as well as mill for processing copper-gold-zinc-silver ore from the deposit and an associated dock, loading and related infrastructure facilities at the Gravina Island Industrial Complex near Ketchikan.

The new law, however, does not commit AIDEA or the state of Alaska to any action. The public corporation must still go through its conventional project evaluation and due diligence process prior to authorizing infrastructure financing for the project.

Based on operations at similar-sized deposits, a mine at Niblack on Prince of Wales would generate about 150 full-time jobs, and the processing facility near Ketchikan would provide an additional 80 full-time positions.

“The Niblack Project has tremendous potential economic benefit to Southeast Alaska communities, residents and business,” AIDEA Executive Director Ted Leonard said in a statement. “This is a unique opportunity to generate employment and economic activity on Prince of Wales Island and in the greater Ketchikan area.”

Parnell also signed into law a bill authorizing AIDEA to provide up to $145 million in financing for surface infrastructure and construction costs at the Bokan-Dotson Ridge rare earth elements project on Prince of Wales Island. The Bokan provision of the bill authorizes the public corporation to issue bonds to finance the construction of key infrastructure for the project, including processing and aboveground facilities. Ucore Rare Metals, the company seeking to develop the Bokan-Dotson Ridge deposit, indicated that the funding arrangement would shift almost two-thirds of the project’s capital costs off the company’s books and into an 11-year payback period, thereby improving short- and long-term project economics. Like the Niblack project, Bokan-Dotson Ridge also must still go through its conventional project evaluation and due diligence process prior to authorizing infrastructure financing for the project.

AIDEA has been involved in support for Alaska’s mining industry for nearly 30 years, beginning with its financing and construction of the DeLong Mountain Transportation System, the road and port that serves the area near the Red Dog Mine in Northwest Alaska.

Robust mineral production

Some of Alaska’s established mines, meanwhile, touted some of their recent individual achievements at a recent mining gathering, including record gold production at Kinross Gold Corp.’s Fort Knox gold mine near Fairbanks, new discoveries at Sumitomo Metal Mining’s Pogo gold mine near Delta or a new deposit at Usibelli Coal Mines Inc. in Healy.

During 2013, the Fort Knox mine produced a record 428,822 ounces of gold, making it the largest gold producer in Alaska last year. Mine officials anticipate recovering 390,000 ounces of gold in 2014.

The underground mine at Pogo, southeast of Fairbanks, currently has enough ore in reserves to last until 2019, and expansion of East Deep and North, two zones adjacent to the mill, will almost certainly add years to gold that Sumitomo can afford to mine and a number of other deposits and prospects stretching to the south have the potential to further extend this horizon.

One of the few mining companies to plan sizable exploration campaigns in Alaska this year, Sumitomo has budgeted US$17 million for the work in 2014.

“Some of the companies are reducing their exploration costs; we aren’t doing that,” Pogo General Manager Chris Kennedy told a Fairbanks audience in April. “Without (exploration) you have got no future, and we want to be here for a long time.”

Usibelli’s Healy operation is expected to mine some 1.6 million short tons of coal in 2014. Roughly 1 million tons of this coal will fuel heat and electrical generation in Interior Alaska; the balance will be exported to customers in Chile, South Korea and Japan.

At the Red Dog Mine in Northwest Alaska, operator Teck Resources Ltd. reported production of 551,300 metric tons (1.215 billion pounds) of zinc from a record 3.85 million metric of ore processed during 2013. The mine also produces significant quantities of lead and silver.

Teck discovered the deposit in 1999, subsequently establishing an inferred resource of about 19 million tons, grading 15.8 percent zinc, 4.8 percent lead, and 2.1 oz/t silver. Highlights from drilling at the nearby Anarraqq deposit include 23 meters averaging 18.1 percent zinc and 5.9 percent lead; and 9.3 meters averaging 25.9 percent zinc and 2.9 percent lead.

Teck pays a 30 percent net proceeds royalty to NANA Inc., the Native regional corporation that owns the land where the mine is located.

During the first quarter, zinc production at Red Dog rose 19 percent compared to the first three months of 2013. Teck anticipates producing between 500,000 and 525,000 metric tons of zinc at Red Dog in 2014.

Teck said exploration programs will continue in these regions during 2014.

Alaska’s two producing mines in Southeast, Greens Creek and Kensington, reported robust production in 2013 and early 2014.

Hecla Mining Co., which owns and operates Greens Creek, said the mine produced 1,787,137 ounces of silver, 15,009 ounces of gold, 4,825 tons of lead and 15,041 tons of zinc from 202,715 tons of ore during the first quarter of 2014 production, similar to output seen in the first and last quarters of 2013. Mining and milling costs per ton were both down significantly when compared to the same period in 2013.

On the exploration front, definition and exploration drilling from two drills continued to enhance the potential of Deep 200 South, a mineralization trend that extends over 3,000 feet along strike and over 1,000 feet of dip. Mineralization remains open to the south.

Coeur Mining Inc. also reported first-quarter 2014 production results from its Kensington gold mine near Juneau. The mill processed 159,697 tons, or nearly 1,800 tons per day, a significant increase over previous quarters, resulting in output of 25,428 ounces of gold grading 0.17 oz/t gold with an average recovery of 94.5 percent. In order to maximize cash flow, Kensington’s mine plan for 2014 reflects higher mining rates at gold grades more in line with its average reserve grade of 0.163 ounces per ton. All-in sustaining cost of production was US$1,005 per ounce, compared with US$667 per ounce cost in the same period a year earlier, due to lower gold grades and production levels.

Kensington’s exploration efforts included four drill rigs and rang in at about US$1 million for the quarter. The mine is expected to produce 150,000 to 112,000 ounces of gold in 2014.

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