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Vol. 15, No. 26 Week of June 27, 2010
Providing coverage of Alaska and Northwest Canada's mineral industry

Mining News: Excitement about Aqqaluk mounts at NANA

Inupiat shareholders look forward to 20 more years of economic benefits from the next zinc-lead deposit to be mined at Red Dog

Shane Lasley

Mining News

The Inupiat people of Northwest Alaska breathed a sigh of relief when Teck Resources Ltd. decided to move ahead with development of the Aqqaluk deposit at the Red Dog Mine. The 51.6 million metric tons of high-grade ore in the deposit that lies next door to the main deposit will extend the life of the world-class zinc-lead-silver mine, and continue to provide economic benefits for 12,000 NANA Regional Corp. shareholders for another 20 years.

“We are excited to move forward with this next phase at Red Dog Mine,” said Marie N. Greene, NANA Regional Corp. president and CEO. “NANA and Teck have worked very hard to ensure that the social, cultural, environmental and economic benefits of Red Dog will remain in place for our people and our region.”

The future of the zinc mine came into question when two environmental law firms — Trustees for Alaska and Center on Race, Poverty and the Environment — appealed the water discharge permit that was issued for the Aqqaluk development by the U.S. Environment Protection Agency.

Representing a handful of residents from the local villages of Kivalina and Point Hope, the environmental groups argued that certain provisions of the NPDES, which is the primary water discharge permit for the huge zinc-lead mine, do not comply with the Clean Water Act.

“We are very disappointed in those appeals, as we believe the EPA went through extensive analysis, sought extensive regional and public involvement, and issued a permit with new discharge limits that protect the environment and allow the mine to comply with permit limits,” NANA Regional Corp. Chairman Donald Sheldon told shareholders.

If development of Aqqaluk did not begin by May, then Red Dog would have run out of ore before the new deposit was ready to be mined, which would have forced Teck to shut down operations for at least a year.

“I want to let you know that any appeals that could halt the development of the Aqqaluk deposit are a direct threat to the economic, cultural, social and environmental benefits that our region receives from owning the Red Dog Mine,” Sheldon said.

After taking into consideration the repercussions of shuttering the mine, Teck decided to move ahead with the development of Aqqaluk, though conditions of the appeal have not been completely resolved.

“Our discussions with EPA have been constructive, and after carefully considering the environment, our employees and local communities we are proceeding with Aqqaluk,” said Mike Agg, Teck senior vice president, zinc.

Billion-dollar corporation

NANA, which owns the zinc-rich land on which Red Dog is situated, has built a global enterprise boasting 2009 revenues of nearly US$1.3 billion. The high-grade zinc mine has been a key contributor to NANA’s success.

“If we lose Red Dog and the income it produces, we will be hit by some real financial hardships,” NANA Development Corp. President Helvi Sandvik told shareholders in her annual report.

Under the operating agreement between Teck and the NANA, the Alaska Native regional corporation receives annual royalty payments. A total of US$471 million in royalties has been paid to NANA since the agreement was signed in 1982, and due to provisions of the Alaska Native Claims Settlement Act, 60 percent of the royalties are shared with the 12 other Alaska Native regional corporations.

Teck paid off its capital and operating costs at Red Dog in 2007, which triggered an increase in NANA’s royalties to 25 percent of net profits from the zinc mine. NANA’s interest is bumped up by 5 percent every five years.

The increased royalty and strong metal prices has helped bolster NANA’s income from Red Dog in recent years. From 2005 to 2009, it received US$373 million in royalty payments.

In addition to royalties, NANA benefits from creating service companies to support Red Dog. Moreover, some 300-plus shareholders work at the mine

“We must remember that Red Dog delivers more than just royalties to NANA. Several NANA companies deliver services to support the mine’s operation. Income earned by these companies is important. But, perhaps the most difficult challenge would be the jobs at Red Dog that would be lost if operations shut down. As we know, we don’t have many other alternative employment opportunities in our region,” Sandvik said.

Shareholders fill Red Dog jobs

Nearly 58 percent of the 550 full-time jobs at Red Dog are filled by NANA shareholders, many of whom have worked their way up to high-level positions at the mine. In addition to employees working directly for Teck, two NANA companies — NANA-Lynden, a joint venture that provides trucking, and NANA Management, which provides housekeeping for the mine — supply additional jobs for residents of the region.

Teck, NANA-Lynden and NANA Management paid US$26 million in wages to some 310 shareholders in 2009, or on average of US$85,000 each. Much of these wages go home to the residents of the 11 villages spread out across the 38,000-square-mile NANA region.

The Inupiat people that live in the region still depend largely on a subsistence lifestyle and have found that the Red Dog Mine enhances their traditional ways. In addition to providing money needed to buy equipment to hunt and fish, the extended periods of free time and flexible leave policy of the mine allow employees to participate in the annual subsistence cycle.

“With its rotational work schedule and close proximity to our villages, Red Dog allows our people to bring home a family supporting paycheck and to continue to live their subsistence lifestyle. We are grateful for this, and we are blessed to live in such a resource-rich area of Alaska where we can responsibly develop our resources and protect and enjoy our subsistence way of life,” Sheldon said.

Not only does working at Red Dog allow residents of the NANA region time to take part in subsistence hunting and fishing, they also are able to play an active role in assuring that the mine protects the environment they treasure.

“We take care to manage the water at Red Dog Mine for our people,” said Herb Adams, mill shift supervisor and NANA shareholder from Kotzebue. “I know that I’m protecting our subsistence resources for my family and friends.”

Adams, who has worked at the zinc mine for 13 years, said his 21-year-old son Tony recently joined the Red Dog crew.

Noorvik

Visiting the NANA village of Noorvik one begins to get a sense of what another 20 years of mining at Red Dog Mine means to the NANA shareholders of Northwest Alaska.

Noorvik, the first community to be counted in the 2010 U.S. Census, has experienced a growth of about 18 percent in its population during the past 20 years, a period when many rural Alaska communities have seen sharp drops in residency due to high costs and lack of economic opportunities.

While a handful of the residents work in local jobs and others work at Red Dog, subsistence hunting, fishing and gathering is the economic base for the some 600 Inupiat residents of Northwest Alaska village, located about 45 miles, or 72 kilometers, southeast of Kotzebue.

A fish camp across the Kobuk River from Noorvik was bustling with activity as three generations of Inupiats work together. The youngest of the children run and play amidst their older siblings who are helping to clean and prepare the day’s haul of pike to be dried and stored.

Donning a Red Dog sweatshirt, Edith Pungalik, the matriarch elder of the camp, is a gracious hostess who invites her guests to share the bounty of dried fish and muktuk, a traditional staple consisting of the skin and outer fat layer of whales. As she deftly slices the vitamin-C-rich whale skin with her ulu, a curved blade knife, she explains the significance of passing traditional Inupiat values and techniques down to the younger generations.

Her husband, Thomas, speaks to the importance of both traditional and modern tools as he talks about subsistence techniques with his guests. He explains that a cut off caribou antler is the best tool for puncturing a hole in fish to string them together to dry. He also speaks to the importance of having the economic means to buy the nets, boats, snowmachines and fuel the people of the region use to hunt and fish.

A strong regional economy has meant that these Noorvik residents continue to hunt and fish on the lands that have sustained their people for more than 10,000 years.

Economic engine in NW Alaska

The residents of the NANA region also benefit from the Northwest Arctic Borough, which covers the entire NANA region. Funds the borough receives from the mine has provided bonds to build five new schools and upgrade several others.

The borough has received about US$88.5 million in payments since Red Dog went into production in 1989.

“Red Dog Mine is an economic engine for our region and for Alaska,” said Northwest Arctic Borough Mayor Martha Whiting. “The mine is the borough’s largest private contributor. Since 2007, we’ve received more than US$25 million from Red Dog’s payment-in-lieu-of-taxes. This money helps us fund important borough-wide education, public service and infrastructure programs.”

The economic benefits of the Northwest Alaska zinc mine also are felt statewide. From 1990-2008, Red Dog provided US$1.3 billion in benefits, including wages to shareholders, joint venture contracts, payments in lieu of taxes and direct royalty payments to NANA. In 2009 alone, the mine provided US$116 million in federal and states taxes and invested US$217 million in the local and state economy through the purchase of goods and services from Alaska suppliers.

With the development of the Aqqaluk deposit, Red Dog promises to be an economic engine in Northwest Alaska for at least another 20 years.



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