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Vol. 19, No. 13 Week of March 30, 2014
Providing coverage of Alaska and Northwest Canada's mineral industry

Mining News: Miners’ views tarnish Alaska in survey

Negative perceptions fuel state’s fall from grace in yearly industry ranking despite the stellar allure of its mineral potential

Curt Freeman

For Mining News

Over the past month, the world has been awash in year-end 2013 mining news, ranging from exploration and production statistics to economic impact numbers and mining favorability polls.

The Alaska highlights from this wad of info include the results from the annual Fraser Institute political jurisdiction favorability survey where Alaska placed first in the world out of 112 jurisdictions for mineral potential. However, Alaska plummeted to 21st place on the survey’s Policy Perception Index, a measure of perceived (and real) policy issues affecting a given jurisdiction. This is having a clear negative impact on Alaska and results in large measure from the EPA’s shenanigans in the Bristol Bay watershed. In a more positive light, the Alaska Miners Association, celebrating its 75th year of operation, released an economic benefits report on Alaska’s mining industry. The report, prepared by Juneau-based McDowell Group, indicated that in 2013 the Alaska mining industry provided 4,600 direct and an additional 9,100 indirect jobs in the state, with combined payrolls of US$630 million. The average wage was US$100,000, twice the statewide average. The industry paid US$17 million to local governments through property taxes and payments in lieu of taxes, US$150 million to the State of Alaska through rents, royalties, fees and taxes and US$144 million to Alaska Native corporations for rents and royalties. Mine workers came from more than 80 communities across the state, many in places with few other job opportunities. The study estimated that exploration spending in 2013 fell more than 40 percent from 2012 to US$180 million, while mine development cost came in at US$250 million and production value totaled US$3.4 billion.

Western Alaska

Zazu Metals Corp. reported positive results from the preliminary economic analysis completed at its Lik property about 22 kilometers (13.6 miles) from Teck/NANA’s Red Dog mine. At a US92-cent zinc average price and an 8 percent interest rate, the post-tax internal rate of return was 9.7 percent with a net present value of US$25 million. The study shows that the deposit’s economics is sensitive to the price of zinc: an average zinc price of US$1.00 more than triples the net present value and pushes the internal rate of return to 13.4 percent. As modeled, an open pit operation at Lik South would have average annual production of 234,000 dry metric tons of zinc concentrate and 55,800 dry metric tons of lead concentrate. In total, 17.1 million metric tons of ore would be milled at a rate of 5,500 metric tons per day at an average grade of 7.7 percent zinc, 2.6 percent lead and 47 grams-per-metric-ton of silver. The study estimated a total capital cost of US$352 million, including a 20 percent contingency for a 2 million metric-ton-per-year mine and mill with an initial nine years of mine life. Although not considered as part of the economic analysis, additional exploration potential exists in the Lik North extension, which could further extend the mine life of the project.

Graphite One Resources Inc. announced that it has satisfied all of its obligations under its option agreement by making the final option payment of US$250,000 and now holds a 100 percent interest in the high-grade Graphite Creek deposit north of Nome. The project will now be governed by a 20-year lease with automatic renewal provisions. The lease agreement allows for a 5 percent net smelter return royalty which can be reduced to 3 percent by cash payment of US$2 million for each one percent purchased. The company recently reported an industry-compliant inferred resource of 284.7 million metric tons at 4.5 percent graphite (including 37.68 million metric tons at 9.2 percent graphite and 8.63 million metric tons at 12.8 percent graphite). The inferred resource suggests that Graphite Creek is one of the largest and highest grade graphite deposits in the United States.

In a rare summary judgment finding, the Alaska Superior Court recently found in favor of the Pebble Limited Partnership and the State of Alaska in its challenge to the “2011 Save our Salmon Initiative” passed by the Lake and Peninsula Borough as a pre-emptive way to stop future development of large mines in the borough. The presiding judge found that the Borough’s initiative granted it powers that are in violation of state law. The Alaska Department of Natural Resources has the ultimate authority to govern mining on State of Alaska lands. This finding is a major victory for the State of Alaska and for anyone interested in natural resource development in Alaska.

Full Metal Minerals Ltd. announced that it had entered into a tripartite letter of intent with International Enexco Inc. and Choice Gold Corp. to consolidate the Contact copper project in Nevada and the Pyramid copper project in Alaska. Full Metal shareholders are expected to own some 19 percent of the combined company, which is to be renamed CopperBank Resources Corp. with the shareholders of Choice, Enexco and the subscribers to the private placement owning approximately 6 percent, 60 percent and 16 percent of CopperBank, respectively. It is also anticipated that CopperBank will complete a five for one share consolidation upon closing of the transaction. Full Metal’s contribution to this transaction is only contemplated to include the subsidiary holding the Pyramid copper project. The immediate impact to the Pyramid copper project was not discussed.

Full Metal Minerals Ltd. also announced that it had signed a letter agreement to sell its interest in the Unga/Popov gold property on Unga Island to Redstar Gold Corp. Redstar will assume Full Metal’s obligations on its Option to Lease with the Aleut Corp., an Alaska Native regional Corporation. Under the terms of the letter agreement, Redstar will issue 4 million shares and pay US$50,000 to Full Metal.

Interior Alaska

Freegold Ventures Ltd. reported that it has engaged Tetra Tech Inc. to complete its initial Preliminary Economic Assessment on its Golden Summit project located near Fairbanks. The PEA will examine potential for a standalone heap leach operation in the current Dolphin – Cleary Hill resource area and will also include a comprehensive review of the current sulfide resource using different cut off grades. Since 2011, Freegold has increased indicated resources by 867 percent and inferred resources by 820 percent. Overall discovery costs since 2011 are estimated to be under $2 per ounce of gold in the Dolphin – Cleary Hill resource area.

Alaska Range

As a longtime follower of Alaska’s only major coal mine, Usibelli Coal Mine, I was under the impression that I knew a bit about this operation. However, in a recent presentation to the Alaska Miners Association by company President Joe Usibelli, Jr., I found out a lot of things I did not know. Here are some factoids about the mine: Usibelli coal mine has been in continuous operation since 1943 and currently produces about 2 million short tons of coal per year, using an employee base of 130 people. Approximately one-half of its production is exported to Chile, South Korea and Japan. About 30 percent of the employee work force is 2nd, 3rd and 4th generation employees. An analysis that looked at eliminating coal from Interior Alaska’s electrical generation facilities indicated that eliminating coal, currently our lowest cost energy producer, would result in Interior ratepayers absorbing an additional US200 million per year in new energy costs. On a per Btu basis, coal is half the cost of natural gas, one-third the cost of naphtha and one-sixth the cost of diesel. Coal accounts for 85 percent of the energy generated by the University of Alaska but only 44 percent of the university’s annual energy costs. Is it any wonder that the University has been pushing to have a new coal-fired power plant built to replace the aging coal plant currently on campus? If the military facilities in Interior Alaska switched from coal to natural gas for energy generation, their costs would rise by 250 percent and that assumes the lowest cost delivery option. For the months November through March, Usibelli accounts for one-sixth the entire employment base of the Denali Borough. In 2012, Usibelli spent US$72 million with 400 different organizations in Alaska. Interior Alaska enjoys 577 jobs and US$44 million in annual payroll as a result of the mining, distribution and consumption of coal from the mine. Put that in your boiler and smoke it!

WestMountain Gold, Inc. announced that its wholly owned Alaska subsidiary, Terra Gold Corp. has acquired 100 percent ownership of the Terra gold project from Corvus Gold Inc. for US$1.8 million in cash and 200,000 shares of WestMountain Gold.

Northern Alaska

In a bellwether announcement that went virtually unnoticed by the financial markets, NovaCopper Inc. announced an updated resource estimate at its Bornite deposit on its Upper Kobuk Mineral project, a partnership with NANA, Inc. The new resource estimate incorporates results from 216 diamond drill holes including 17 holes totaling 8,142 meters drilled by the company during the 2013 drilling campaign, as well new assays from 42 historical Kennecott drill holes comprising 14,457 meters with partial or no assays. The deposit now contains 5.7 billion pounds of copper in the inferred category and 334 million lbs of copper in the indicated category. In-pit indicated resources include 14.1 million metric tons at an average grade of 1.08 percent copper containing 334 million lbs of copper at a 0.5 percent copper cutoff. In-pit inferred resources include 109.6 million metric tons at an average grade of 0.94 percent copper containing 2.3 billion lbs of copper at a 0.5 percent copper cutoff. Below-pit inferred resources include 55.6 million metric tons at an average grade of 2.81 percent copper containing 3.4 billion lbs of copper at a 1.5 percent copper cutoff. This latest resource estimate represents an 87 percent increase in contained copper in the indicated resource category and a 73 percent increase in contained copper in the inferred resource category. The resource remains open along the one-kilometer-wide northern margin of the deposit as well as the up-dip projection of the South Reef zone. Given the scale of the mineralization, which now measures 1.5 kilometers along strike and 2 kilometers down dip, the company speculated that further exploration could potentially make the Bornite deposit of similar size and grade to the geologically comparable Mount Isa deposit of Queensland, Australia, a deposit which ultimately extracted 405 million metric tons grading 2.12 percent copper.

Southeast Alaska

Hecla Mining announced year-end 2013 reserves and resources at its Greens Creek mine on Admiralty Island. Nearly 100 percent of the ore mined during 2013 was replaced, even though the silver price used to calculate reserves was $20 per ounce, a 23 percent reduction from last year. Measured and indicated resources increased at Greens Creek by 254 percent to 9.4 million ounces of silver. Inferred resources declined by 26 percent to 31.8 million oz of silver due to the upgrade of inferred resources to measured and indicated resources and the conversion of some of that resource to reserve at Deep 200 South, 200 South and East Ore. All resource zones, except the East Ore Zone, were impacted with reduced tons and ounces by reporting an undiluted resource rather than diluted resource, as in previous years, to comply with regulatory requirements and due to the decline in metals prices. The primary replacement came from the conversion of more than 700,000 tons of resource material to reserve in the Deep 200 South, 200 South and Southwest Bench. The 200 South and Deep 200 South zones currently represent a mineralization trend that extends more than 3,000 feet along strike and over 1,000 feet of dip. Definition and exploration drilling of the Deep 200 South has defined three stacked folds of high-grade mineralization that represents up to 600 feet of down-dip continuity. Drill intersections continue to be very encouraging and mineralization remains open to the south. Deep 200 South had some of the widest and highest grade intercepts in recent history at the mine and include 48per ton silver, 0.07 oz/t gold, 6.6 percent zinc and 3.3 percent lead over 26.7 feet and 32.5 oz/t silver, 0.46 oz/t gold, 17.0 percent zinc and 7.3 percent lead over 35 feet. Similar southward trending mineralization remains open along the 5250 and Gallagher trends, and the Southwest Bench and Northwest-West zones are open to the southwest. Definition drilling of the East Ore confirmed reserves in the central part of the zone and refined resources on the perimeter. Underground drilling in 2014 is expected to consist mainly of in-fill drilling in order to develop a mine plan on the Deep 200 South and the Southwest Bench. Additional exploration drilling will test for mineralization along the limbs of the lower fold, as well as the projected intersection of the Gallagher Fault and the Deep 200 South mineralization. The remaining exploration drilling is expected to test a 1,000-foot gap in drilling at the junction of the projection of the Southwest Bench, 200 South and Deep 200 South. Surface drilling at the Killer Creek area, which is less than a mile from the current Greens Creek mine infrastructure, intersected broad mineralized zones up to 400 feet thick with stringer veins locally grading up to 10 percent copper and 10.4 percent combined lead-zinc. Widely spaced drilling currently covers an area of 2,500 feet by 2,500 feet and suggests mineralization open in all directions. In general, the northern holes are more copper-gold rich and the southeast area is more zinc, lead and silver rich. The company believes these “stockwork veins” are characteristic of a vent or source area for the mineralizing fluids for either the Greens Creek deposit or a completely separate sulfide deposit. The planned 20,000 feet of surface drilling at Killer Creek is designed to better define the outward extent of the stockwork area and to intercept the mine contact zone at depth. The company also announced year-end 2013 reserves and resources for the mine including proven and probable reserves of 7,797,000 tons grading 11.9 oz/t silver, 0.09 oz/t gold, 3.3 percent lead and 8.7 percent zinc. In addition, the mine contains measured and indicated resources of 767,000 short tons of indicated resources grading 12.2 oz/t silver, 0.09 oz/t gold, 3.3 percent lead and 7.3 percent zinc. The mine also reported inferred resources of 2.385 million short tons grading 13.3 oz/t silver, 0.09 oz/t gold, 2.7 percent lead and 6.5 percent zinc. I know we are not supposed to do this, but if you add up the silver in all resource categories, these figures indicate that the mine is carrying more than 210 million oz of silver!

Coeur Mining Inc. also reported year-end 2013 reserves and resources at its Kensington mine. The mine reported proven reserves of 354,000 tons grading 0.243 oz/t gold oz (86,000 oz), probable reserves of nearly 5.67 million short tons grading 0.158 oz/t gold (897,000 oz), measured and indicated resources of 2.69 million short tons grading 0.211 oz/t gold (566,000 oz), and inferred resources of 1,014,000 tons grading 0.259 oz/t gold (263,000 oz). The mine is carrying over 1.8 million ounces of gold in all resource categories.

Ucore Rare Metals Inc. reported that a recent bill before the Alaska State Legislature would give Alaska Industrial Development and Export Authority the right to issue up to $145 million in long-term bonds to help finance the infrastructure and construction costs of the company’s Bokan-Dotson Ridge rare earth project. The bill is now expected to be scheduled before the Senate Labor and Commerce Committee for further action in preparation for the scheduling of a vote before the full Senate and presentation to the House of Representatives during the current legislative session.

Along similar lines, Heatherdale Resources Ltd. announced that the Alaska State Senate Labor and Commerce Committee passed an amendment to authorize AIDEA to issue bonds of up to US$125 million to finance infrastructure and construction costs of the Niblack volcanogenic massive sulfide project on Prince of Wales Island. Facilities covered by this bond include a mineral processing mill and associated dock, loading and related infrastructure facilities at the Gravina Island Industrial Complex, and some of the infrastructure at the Niblack project site on Prince of Wales Island. The processing mill, and associated dock, loading and infrastructure facilities would be owned and/or financed by AIDEA. The bill must still pass the full State Senate and go through the House before it would become law.

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