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Vol. 22, No. 1 Week of January 01, 2017
Providing coverage of Alaska and Northwest Canada's mineral industry

Mining News: Golden 2017 for miners

Higher metals prices, lower federal hurdles bodes well for Alaska’s miners

Shane Lasley

Mining News

Strong metals prices and a pro-jobs businessman who vows to inject “new American metal into the spine of this country” preparing to set up his office in the White House bodes well for Alaska’s mining sector going into 2017.

While a renaissance of Alaska’s mining sector may not be at the top of President-elect Donald Trump’s to-do list, pouring coal on the fire of America’s economic engine – both literally and figuratively – is.

The figurative coal important to Alaskan miners includes rolling back burdensome regulations and leveraging up to US$1 trillion worth of infrastructure spending in the United States. Both of these facets of Trump’s economic plan – easing the ability to permit domestic mines and creating greater demand for the metals these mines produce – is good news for miners in Alaska and across the nation.

“We’re going to put our great miners and steel workers back to work,” President-elect Donald Trump vowed on the campaign trail.

With the metals important to Alaska’s mining sector – gold, silver, zinc, lead and copper – all enjoying healthy gains during 2016, this promise from America’s top executive comes at an opportune time.

Less regulation

From the U.S. Bureau of Land Management attempting to put large swaths of federal lands in Alaska off limits to development to the U.S. Environmental Protection Agency expanding its regulatory reach, the mining sector in Alaska and across the nation has been inundated with tomes of new policies written at the agency level of the federal government.

Rolling back many of these regulations that are hampering job growth due to the pressure they are putting on mining, farming, energy production, manufacturing and other industries in the United States is one of Trump’s top priorities when he takes office.

“Regulations have grown into a massive, job-killing industry – and the regulation industry is one business I will put an end to,” the president-elect vowed on the final leg of his successful bid for the White House.

The top regulations to be reviewed by the Trump administration are:

•Environmental Protection Agency’s Clean Power Plan, which is aimed at reducing carbon emissions from coal and natural gas plants;

•EPA’s Waters of the United States rule, a highly contentious regulation that would substantially increase the regulator’s jurisdiction and is expected to be especially burdensome for resource development in the U.S.; and

•Department of Interior’s moratorium on coal leases on federal lands, aimed at restricting future coal available from the U.S.

“My plan will embrace the truth that people flourish under a minimum government burden, and it will tap into the incredible unrealized potential of our workers and their dreams,” the president-elect explained.

Higher zinc demand

In addition to removing some of the regulatory roadblocks, Trump proposes to transform “America’s crumbling infrastructure into a golden opportunity for accelerated economic growth.”

These infrastructure plans are particularly good news for zinc.

Roughly half of the zinc mined in the world is used for galvanizing, a process of applying a protective zinc coating to steel or iron, to prevent rusting. Restoring America’s crumbling infrastructure would require guardrails, light poles, culverts, bridges, cell towers and many other construction materials made from galvanized steel.

The Red Dog Mine in Northwest Alaska and the Greens Creek Mine on the Southeast Panhandle produce roughly 635,000 metric tons (1.4 billion pounds) of zinc per year, or roughly 5 percent of the global supply of this galvanizing metal.

This makes zinc the highest valued metal produced in Alaska, a value that will increase sharply this year thanks to soaring zinc prices.

Starting off 2016 at around US72 cents/lb, the zinc price rocketed to a high of US$1.27/lb. in December, a 76 percent increase. While the galvanizing metal has been climbing steadily this year, it shot up 12 percent in the two weeks following the U.S. presidential election.

Pebble leverage

While the price of copper has not rocketed to the same degree as zinc, the electricity conducting metal has climbed nearly 24 percent, from US$2.17/lb at the beginning of 2016 to a high of US$2.69 earlier this month.

Though copper currently is not mined in Alaska to any economically significant degree, the state hosts world-class copper projects set to potentially enter the permitting process during the Trump presidency.

The widest renowned and of these projects, Pebble, is set to benefit from both rising copper prices and an administration that is determined to pull in the reigns on federal regulatory agencies.

According to the latest resource estimate, Pebble hosts 6.44 billion metric tons of measured and indicated resources averaging 0.4 percent (56.76 billion lbs) copper, 0.34 grams per metric ton (70.38 million ounces) gold, 240 parts per million (3.4 billion lbs) molybdenum and 1.66 g/t (343.6 million oz) silver.

If developed, this deposit would provide enough ore to last several decades. Due to this enormous size, current metals prices are less of a factor in determining when to develop this world-class deposit situated on state lands. The bigger issue is a clear path to permitting a mine that is of the scale to due this enormous deposit justice while protecting the environmental integrity of the Bristol Bay region where it is located.

"Northern Dynasty and EPA share a strong conviction that any mine developed at Pebble must meet the highest environmental standards, and protect the fisheries resources of southwest Alaska, or it should not be permitted," said Ron Thiessen, president and CEO of Northern Dynasty, the Canadian mining junior that owns the Pebble project.

Pebble Limited Partnership, a company formed to develop Pebble, has been in a long legal fight with EPA over the environmental agency’s efforts to use Section 404 (c) of the U.S. Clean Water Act to prevent Pebble from entering the permitting process.

In late October, Pebble and EPA decided to settle their dispute outside of the courtroom, a negotiation that is expected to result in the regulator backing away from its pre-emptive action and allow the enormous copper project to enter the permitting process.

The hopeful Pebble developer gained added leverage with the Trump victory.

Scott Pruitt, president-elect’s choice to lead EPA, has a history of fighting back against the agency’s overreach during his tenure as Oklahoma’s attorney general.

The out of court negotiations between Pebble Partnership and EPA were originally slated to be finalized by the end of the year. A settlement, however, now has been delayed until early in 2017 and may wait until the new administration takes over.

A clear path to gaining the permits needed to develop Pebble could open the door for a partner with the deep pockets necessary to invest the billions of dollars needed to put the enormous copper mine into production.

Gold pressured

Roughly 1 million ounces of gold was mined in Alaska in 2016, when you combine the gold produced at four of Alaska’s large metal mines – Fort Knox, Pogo, Kensington and Greens Creek – and the placer aurum from the family-scale operations across the state. This comes to about US$1.25 billion of the precious metal at the year’s average of US$1,250 per troy ounce.

Starting off 2016 at around US$1,080/oz, gold made strong gains early in the year, climbing more than 25 percent to US$1,350/oz. at mid-year before giving up much of these gains as the year came to a close.

Surprisingly, much of the loss has come in the seven weeks since the American people elected Trump as the next U.S. President.

Analysts were nearly unanimous in their forecasts that a successful White House bid by the business mogul and reality TV star would inject political uncertainty into the markets and push gold higher. The safe-haven metal, however, has fallen steadily since the election, from US$1,281 on Nov. 9 to US$1,158 on Dec. 29.

While gold has retreated from its mid-year highs, it is still up 7 percent on the year, marking the first such annual gain since 2012.

Most analysts are expecting continued downward pressure on gold early in 2017 and then modest gains as the year wears on.

Swiss bank UBS is among the most bullish gold prognosticators, calling for the safe-haven asset to average US$1,350/oz. in 2017.

Silver uptick

Silver, the primary metal mined at Greens Creek Mine and a tertiary metal at Red Dog Mine made even healthier percentage gains in 2016, rocketing 48 percent from US$14/oz. to US$20.70/oz. in July.

Sometimes referred to as “poor man’s gold”, silver too lost its luster as the year wore on, settling to US$16/oz. on Dec. 28, a 14 percent increase for the year.

According to early calculations by North of 60 Mining News, Greens Creek and Red Dog produced around 16 million oz. of silver in 2016. With silver prices averaging US$17.15/oz, this comes to nearly another US$275 million of metal production for Alaska this year.

While silver trades primarily as a precious metal, it does have a number of industrial applications such as batteries, LED chips, solar panels and semiconductors. Some analysts believe these uses, coupled with Trump’s fiscal policies, could drive the silver price higher.

“Clearly, any uptick in infrastructure spending resulting from the recent U.S. election could benefit silver's industrial demand side,” an analyst at the Canadian Imperial Bank of Commerce wrotein a recent report.

Adding to this upward pressure from demand, global silver supplies are expected to continue to fall in 2017, which could add further upside pressure to this precious industrial metal.

UBS looks for silver to average US$18.60 next year.

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