State policy deters mining exploration, Freeman says in analysis

Global mining survey indicates downslide in industry’s view of Alaska for exploration investment, despite anticipated increase in 2003 work

Patricia Jones

PNA Contributing Writer

Attitudes about Alaska’s mining opportunities took a downturn in the latest survey of worldwide mining companies, although the actual industry environment has improved in the last year.

That’s according to Curt Freeman, president and CEO of Avalon Development Corp., a Fairbanks-based consulting geological firm that conducts mineral exploratory work throughout the state.

He presented an analysis of the state’s mining industry and expectations for 2003 to the Fairbanks branch of the Alaska Miners Association Jan. 24.

In his presentation, he discussed discouraging results from an annual survey of mining companies conducted by the Fraser Institute, an economic think tank based in Vancouver, B.C.

“The attitude about Alaska slid significantly,” Freeman said. “Places like Russia, Bolivia, Brazil, Chile and Peru are perceived to be better places to work than Alaska.”

Alaska’s ranking in the 2002 survey of investment attractiveness was 15th out of 47 states, Canadian provinces and countries included in the study. In 2001, Alaska ranked seventh in the survey, Freeman said.

“Now we are competing worldwide for investment dollars, whether we like it or not,” Freeman said.

The survey represents responses from 158 junior and senior exploration and mining companies, responsible for $738 million in global exploration expenditures in 2001, according to the Fraser Institute. Those companies rated the policy attractiveness and mineral attractiveness of mining jurisdictions in North America and internationally.

Freeman said the downturn in Alaska’s ranking should concern the state’s mining industry and also politicians, who can affect policies governing the industry.

“Perception is reality,” he said. “But nothing changed in the last year.”

In fact, he anticipates an increase in exploratory work throughout Alaska in 2003, thanks to an increase in metal prices, last year’s successful exploration work at the Donlin Creek deposit in southwest Alaska and a pro-development administration both on a state and federal level.

“The planets are aligned in a way we couldn’t have even dreamed of two years ago,” he said. “It’s time our industry gets to address these concerns with the new administration.”

Poor policy perceptions

It measures the effects on exploration from taxation, environmental regulations, administration and duplication of regulations, uncertainty concerning Native land claims and protected areas, labor issues, infrastructure, socioeconomic agreements and political stability.

In the 2002 survey, Alaska’s policy potential scored 50 points out of a possible 100, for a ranking of 23rd out of the 47 mining jurisdictions.

“It’s the regulatory and land use policy perceptions that are killing us,” Freeman said. “Alaska would be ranked number three out of 47 if land use and regulatory policies are ignored.

“This is the reality for people who put money into the state.”

He noted that four out of 10 companies surveyed said that they are strongly deterred from investing in Alaska’s mineral industry because of the state’s environmental policies, the state’s land status and the lack of infrastructure.

Furthermore, one-quarter of the survey respondents said regulatory uncertainty and regulatory duplication were strong deterrents to mining exploration investment in Alaska.

“Policies do need improvement — streamlining and brought up to the 21st century,” Freeman said. “Everyone knows they have to live with regulations, but they could be more efficient.”

Alaska’s mineral potential great

“The gold discovery rate in Alaska is phenomenal,” he said.

Currently, exploration companies have identified in Alaska 77.7 million ounces of gold located in underground deposits.

“Twenty years ago, that number was almost zero,” Freeman said. “We reached critical mass in 1996.”

An industry benchmark for discovery costs by mining companies is about $20 per ounce of gold, Freeman said. “Alaska’s average is $4.55 … the cost per ounce is very favorable.”

That average was greatly improved thanks to successful exploration work at the Donlin Creek deposit in southwest Alaska. After two years of exploration at Donlin Creek and roughly $10 million in exploration spending, NovaGold Resources Inc. identified 27.8 million ounces of gold in the host rock.

“There’s a lot more acres around Donlin Creek, and more ounces to be found,” Freeman said.

In the survey’s mineral potential index, which rates a region’s attractiveness based on mining company executives’ perceptions of geology, Alaska’s ranking improved to 15th out of 47. But that ranking is lower than the prior year’s, Freeman said. “Even though we’ve created more potential here, the changed perception is that you can’t do business here.”

Case study in progress

“This is a barometer for what you can do in Alaska,” Freeman said. “With the access road and permitting an underground mine, people within the mining industry are watching this very closely.”

Teck Resources is developing the 5.5 million ounce gold deposit about 35 miles northeast of Delta Junction. The company is still waiting for a draft environmental impact statement from regulators, which was expected to be released in January.

“The perceived opinion is that the regulatory process is slowing this down, a purposeful roadblock by state and federal agencies,” Freeman said. “I don’t think it’s true, but it’s difficult to get that across to other mining companies looking at Alaska.”