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Vol. 20, No. 8 Week of February 22, 2015
Providing coverage of Alaska and Northwest Canada's mineral industry

Mining News: AK mines top $3B

Higher zinc prices, Red Dog output offset lower gold values in 2014

Shane Lasley

Mining News

Galvanized by higher zinc prices and strong production at Teck Resources Ltd.’s Red Dog Mine, the value of Alaska’s mineral production topped US$3 billion for the fifth year running.

Larry Freeman, chief of Minerals Resources at the Alaska Division of Geological & Geophysical Surveys, told an audience at the AME BC Mineral Exploration Roundup that production of zinc, lead and silver – all metals produced at Red Dog – climbed in Alaska during 2014. Gold production, on the other hand, fell slightly last year.

During his Jan. 26 presentation at the Vancouver, B.C. gathering, Freeman said his calculations show that the combined value of the four metals is about US$3.3 billion, and does not include the values of coal, sand and gravel mined in the state. The figure, however, will likely be refined slightly, once all final production results become available.

Similar to Freeman’s appraisal, the U.S. Geological Survey estimates that mineral production in Alaska for 2014 totaled more than US$3.5 billion, slightly higher than US$3.4 billion in materials mined in the 49th State during the previous year.

This ranks Alaska as the nation’s seventh-largest mineral producing state – behind Arizona, Nevada, Minnesota, Texas, Utah and California.

The USGS published its findings in the “Mineral Commodity Summaries 2015”, an annual report that is considered to be the first comprehensive source of 2014 mineral production data for the world.

“Decision-makers and policy-makers in the private and public sectors rely on the mineral commodity summaries and other USGS minerals information publications as unbiased sources of information to make business decisions and national policy,” noted USGS National Minerals Information Center Director Steven Fortier.

Zinc reigns

Zinc has reclaimed its reign as the top commodity mined in Alaska.

Roughly 717,000 short tons of zinc was produced in Alaska during 2014. This accounts for roughly US$1.4 billion, or 42 percent, of Alaska’s metal production value for the year.

Red Dog produced 657,000 tons (596,000 metric tons) of zinc during 2014. This is not only the bulk of zinc produced in Alaska, but accounts for more than 70 percent of the zinc mined in the United States and roughly five percent mined globally.

“Domestic zinc mine production increased by five percent in 2014 from that of 2013, owing to increased production at the Red Dog Mine in Alaska; mill throughput at the mine rose significantly as a result of processing softer ores from the Aqqaluk deposit,” according to the USGS commodities report.

This assertion of increased throughput at Red Dog is affirmed by the upper management of Teck Resources, which operates the Northwest Alaska mine.

“Our experience with the Aqqaluk is new within the last three years, and there is more barite in the (deposit). The softer grinding ore is an unexpected upside surprise to us. So, that’s what accounts for the additional zinc production from Red Dog this year,” Teck Senior Vice President of Zinc Rob Scott informed investors in October.

In addition to increased production, Teck and its fellow zinc producers are enjoying higher prices for the metal.

For 2014, zinc averaged US98 cents per pound, a 12.6 percent increase over the US87 cents per lb. realized during 2013.

While Red Dog dominates Alaska zinc production, Hecla Mining Co.’s Greens Creek Mine in Southeast Alaska produced 59,810 short tons of the grey metal last year.

Though considered by-products; zinc, lead and gold play important roles in keeping the costs of mining silver at Greens Creek very low.

During the third quarter of 2014, zinc accounted for 34 percent of revenue at Greens Creek, nearly as much as silver at 37 percent. Gold, at 20 percent, and lead, at 9 percent, made up the rest of the revenue for the underground mine.

Gold slips

Though production and prices for gold decreased in 2014, the precious metal ran a close second in terms of Alaska metals production value.

Freeman told listeners at Roundup that Alaska’s mines produced roughly 960,000 ounces of gold in 2014, compared to slightly more than 1 million oz recovered in 2013. The value of the gold recovered in Alaska last year comes to roughly US$1.22 billion based on an average price of US$1,266 per oz for the precious metal in 2014. This compares with a production value of US$1.55 billion in 2013, when both gold production and prices were higher.

The drop in Alaska gold production largely reflects the 42,000-oz decrease in the precious metal recovered at Kinross Gold Corp.’s Fort Knox Mine near Fairbanks.

During 2014, Fort Knox produced 379,453 oz of the yellow metal, down 10 percent from the record 421,641 oz recovered from the Interior Alaska mine in 2013. Kinross attributes the drop in production and an associated rise in mining costs primarily to higher operating waste and lower gold grades mined last year.

“Fort Knox had a strong year, despite challenges resulting from a wall failure, which occurred (at) the end of 2013. This restricted access to the high-grade portion of the pit, increased operating rates and haulage distances, which impacted costs in the second and third quarters,” Kinross Chief Operating Officer Warwick Morley-Jepson explained during a Feb. 11 presentation.

In the coming year, Kinross is looking to invest roughly US$60 million on a pit expansion that will add years to the Interior Alaska gold mine.

“In 2015, we plan to initiate stripping of the Phase 8 pushback, which is forecast to extend mining through 2018 and beyond,” Morley-Jepson added.

At the end of 2014, the Fort Knox area had 2.4 million oz of gold in 163.84 million metric tons of proven and probable reserves grading 0.46 grams per metric ton.

Sumitomo Metal Mining’s Pogo Mine, located roughly 60 miles southeast of Fairbanks, contributed another 344,000 oz or so to gold produced in Alaska last year, slightly more than the 337,393 oz recovered from the underground operation in 2013.

Alaska’s third primary gold producer, Coeur Mining’s Kensington operation in Southeast, produced 117,823 ounces of gold in 2014, well above the company’s guidance of 107,000-112,000 ounces for the year.

Recent drilling at Kensington has tapped into newly discovered zones of high-grade gold mineralization at Kensington South, just beneath areas currently being mined, and the neighboring Jualin Mine. Both of these areas that have returned drill intercepts of more than 1.0 oz per short ton gold are expected to increase average grades mined at the underground operation in the near future.

Coeur has yet to forecast how much gold it anticipates Kensington to produce in 2015. The Chicago-based miner, however, said it will release a new mine plan soon that is expected to reflect higher-grade, higher-margin production over the life of the Southeast Alaska gold mine.

According to early data compiled by DGGS’ Freeman, the 300 or so placer mining operations across Alaska collectively produced roughly 75,000 oz of gold in 2014, a slight drop from the 82,591 oz of alluvial gold recovered from these small mines a year earlier.

The 2015 startup of mining at the Chandalar property some 200 miles north of Fairbanks is expected to contribute significantly to future placer production in Alaska.

Goldrich NyacAU Placer, LLC – a joint venture placer mining company owned equally by Goldrich Mining Company and NyacAU, LLC – is targeting recovery of up to 20,000 oz of gold from a 10.5-million-cubic-yard drill-delineated deposit averaging 0.025 oz/per cubic yard (250,000 oz) gold.

While the partners plan to start mining this year, the placer mine is not expected to achieve full capacity until 2016.

Hecla’s Greens Creek Mine contributed another 58,753 oz of gold to the state’s tally in 2014.

Long-lived Usibelli

While zinc and gold have vied for top billing in recent years, Alaska’s longest lived mining operation is the Usibelli Coal Mine nearly Healy, roughly 100 road miles south of Fairbanks.

Usibelli mined 1.5 million tons of coal during 2014, its 71st year of operation. Roughly 1 million tons of the ultra-low sulfur subbituminous coal in Usibelli deposits were delivered to six power plants in Interior Alaska, while the balance was transported by rail to Seward and shipped to overseas customers in the Pacific Rim.

Though family-owned Usibelli Coal Mines has been delivering a local source of low-cost fuel for power and heat to Alaska for more than 70 years, the company’s properties still host some 700 million tons of coal in reserves, plenty for the operation to continue its tradition well into the future.

Other Alaska coal projects on the horizon are Usibelli’s Wishbone Hill and Riverdale Resources’ Jonesville projects, both in the historic Matanuska Coal Field about 50 miles north of Anchorage, and Chuitna, a 300-million-ton coal project situated on the west side of Southcentral Alaska’s Cook Inlet.

Stepping stones

With Red Dog forecast to produce another 550,000 metric tons of zinc and Alaska’ gold miners on pace to test the 1-million-oz milestone again in 2015, the state’s mining sector could well top the US$3 billion for a sixth year running.

Moreover, with existing operations continuing to add reserves, along with new mines on the horizon, the US$3-billion benchmark may prove to be a stepping stone to even greater production for a growing mining sector in Alaska.

Freeman said the number and quality of mineral resources found across Alaska demonstrates that the Far North State is a maturing frontier mining jurisdiction rich in a diversity of metals.

This vast potential is reflected in the roughly 28 million ounces of gold, 6 billion pounds of copper, and significant deposits of graphite and rare earth elements added as resources at projects across the state since 2008.

Novagold Resources’ Donlin Gold project alone is set to boost Alaska’s gold production by more than 1 million ounces per year when it comes on line. Donlin would add roughly US$1.3 billion to the state’s total metal production value at current gold prices. More than halfway through a four-year permitting process, the nearly 40-million-ounce gold deposit could begin production as early as 2021.

As large as Donlin Gold is, it pales in comparison to Northern Dynasty Minerals Ltd.’s embattled Pebble deposit. A preliminary economic assessment completed in 2011 envisions a mine that would produce 690 million pounds of copper, 667,000 ounces of gold, 31,000 pounds of molybdenum, 27,000 kilograms (58,000 pounds) of rhenium and 20,000 pounds of palladium. At this output, the value of the metals mined at Pebble alone would top US$3 billion annually at today’s prices.

The next generation of projects to enter Alaska’s permitting process is likely to include polymetallic deposits such as NovaCopper’s Arctic deposit in Northwest Alaska, Constantine Resources’ Palmer project on the Southeast Panhandle; graphite from Graphite Resources’ Graphite Creek deposit near Nome; and rare earth elements from Ucore Rare Metals’ Bokan project on Prince of Wales Island.

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