A gem of a deposit in northwest Alaska

It's still a few years off, but if NovaGold Resources Inc. turns the Ambler prospect into an operating mine, it could open up a mineral belt with a total of $12 billion in reserves - at 1982 prices.

That $12 billion figure comes from a 1982 state report listing 10 major volcano-derived deposits in northwestern Alaska, from the operating Red Dog Mine all the way to the border of Gates of the Arctic National Park.

Perhaps the biggest and richest concentration is the Arctic deposit 150 miles east of Kotzebue near the villages of Ambler and Shungnak. It was discovered by Kennecott way back in the 1960s, according to Greg Johnson, NovaGold 's vice president of corporate communications and strategic development.

NovaGold, a young Canadian junior based in Vancouver, is focused mainly on Alaska development. It has a big piece of the Donlin Creek prospect and a couple of planned operations around Nome, as well as the Ambler deal, in which NovaGold is earning an initial 51 percent interest by spending $20 million before 2016. A prospect in northern British Columbia, Galore Creek, is also in the development pipeline.

Kennecott's work in the sixties brought a breathtaking estimate for the Arctic ore body, which is only about a kilometer square, according to Johnson. Estimates from the older exploration program, involving 70 wide-spaced drill holes, put the resource in a league with some of the richest deposits in the world. Some can be mined from the surface, while some will probably require underground work, Johnson said.

The 36 million tonnes of ore contain an estimated 3.2 billion pounds of copper, 4.2 billion ounces of zinc, and 640 million pounds of lead. Along with those base metals comes quite a bonus - 817,000 ounces of gold and 62.1 million ounces of silver.

New drill data

This summer, after reaching an agreement in late March with Rio Tinto PLC, Kennecott's huge parent, NovaGold began a new drilling program to confirm the historic resource and gather new data.

Eleven holes confirmed the rich deposits, with assay results from the first five holes showing some notable intervals. One core showed four high-grade horizons totaling 48.6 meters - or more than 150 feet - with 8.9 percent copper equivalent. Another showed an equivalent of 8 percent copper in two zones that totaled 26 meters.

"These initial results demonstrate why the Arctic deposit is ranked as one of the top undeveloped VMS (volcanogenic massive sulfide) deposits in the world," noted Rick Van Nieuwenhuyse, NovaGold's president and CEO.

The $1.5 million summer exploration program included nearly 10,000 feet of drilling, along with structural mapping, re-logging and re-sampling of the historic core to update and refine the 3-D model of the deposit.

"It's just like the 3-D techniques used in oil and gas exploration," said NovaGold's Johnson, vice president for corporate communications and strategic development. He's also a long-time Alaska exploration geologist involved in the initial exploration of Donlin Creek. "It's a process to let you tease out the clues."

Along with new understanding of the ore body, new data are needed just to meet new reporting standards.

"There are new regulations that require us to refer to resources as historic if they don't meet current regulatory requirements, Johnson said. "We have to have a third-party firm verify those resources."

For next year, NovaGold plans some infill drilling at the site, and getting that third-party report. Along with that comes a preliminary engineering estimate and a look at capital costs and operating costs.

"With that completed, we'll focus on infrastructure studies and make decisions on whether it's viable to go this way or that," he said.

A prefeasability study will likely be completed in 2006, assuming positive results next year, and "you have to collect a year's worth of baseline environmental data," Johnson outlined. "We'd probably be looking at 2008 to be at the feasibility level. In 2008 we could be putting the final economics together and starting the permit process."

Why now, why not then?

The high-grade mineralization in northwestern Alaska has been known for a quarter of a century or more. But mining companies have let their data on the region lie dormant since the 1980s.

Aside from the Arctic deposit and other resources on the 35,000-acre Kennecott property, there are plenty of other potential mine sites not far from Ambler, including the Bornite deposit on NANA Native corporation lands a few miles away. Bornite alone has 5 million tons of 4 percent copper reserve and up to 40 million tons of 2 percent copper, according to state figures.

"There was a big heyday in the 1970s, with lots of exploration in the Brooks Range and northern Alaska," says David Szumigala, senior minerals geologist for the Alaska Department of Natural Resources. "A lot of major companies were up there, and there was a lot of money spent" by Kennecott, Anaconda and others.

But then came the big federal and Native corporation land transfers in the early 1980s, and ownership, transportation corridors, and other development issues got murky.

"Things were so much up in the air," said NovaGold's Johnson. "I don't know if it was so much park development, but land status in general.

"That's when they (Kennecott executives) were looking at taking this to the next stage." Along with uncertainties about access and environmental issues came a 25-year bear market in metals, Johnson noted. "They met their filing requirements every year, but didn't push forward."

Changing climate

But recent months have seen a major change in the world metals market, particularly for copper, as China's demand for basic materials has risen dramatically. Just as with oil, the Chinese demand has pushed a marginal supply-demand balance toward the deficit side, with a predictable impact on prices. China's thirst for basic materials was so great at one point a few months ago that rates for ocean-going ore carriers tripled.

As Teck Cominco noted in its recent quarterly report, the metals market has shown a remarkable rise over the past year.

"The average LME (London Metals Exchange) prices for copper, zinc and lead were US$1.29, US$0.44, and US$0.42 per pound respectively in the quarter, up 61 percent, 19 percent, and 81 percent from the same period a year earlier." Those higher prices supercharged earnings. The big Canadian firm had record earnings for the quarter of $120 million, up 650 percent from $16 million a year earlier.

Copper, the big resources at Ambler, "is such a basic material for plumbing and wiring," says NovaGold's Johnson. "The fundamentals for copper are particularly strong" with 2 billion people in China and India adding modern systems to their homes, including air conditioners and refrigerators, that are big consumers of copper.

And the current demand comes after a period when low prices provided little incentive for new mine development.

"The last 25 years has been one of the worst bear markets for metals," Johnson observed. "You can see the potential for a severe supply squeeze," especially because it takes so long to get a project from discovery to production.

Transportation challenge

Developing basic metal mines in remote Alaska hinges on two major issues: transportation and power for the huge crushing machines that turn the ore into concentrate.

"It's always energy and transportation - those are the keys for every project, notes Szumigala, the state mineral geologist.

Transportation was probably the big issue that shelved the Ambler project a couple decades ago. But it may not be such a problem now, partly because villages in remote parts of Alaska are changing their traditional opposition to being connected to the outside world.

Johnson sees three basic routes for getting ore concentrate to the smelters, noting that it's "still early days." The company is commissioning a study by CH2M Hill that will look at the options.

As Johnson notes, "it's either off to the west to tidewater, to the east to the haul road (the Dalton Highway) or south to the Yukon. In any case, the ore would eventually be loaded onto ocean-going ships for transport to smelters.

Planners at the Alaska Department of Transportation looked at the options as recently as a couple years ago, according to industrial roads program manager Mike McKinnon, because "they recognized the tremendous resource belt in that area."

"We looked at road and rail essentially from Fairbanks to the mining district. We looked at coming through the foothills from the Dalton Highway.

"We looked at going out to the coast from there - to Nome and to Kotzebue or Red Dog. Frankly we couldn't find a path west because of conservation units." The high cost of building a road through the extensive wetlands was also a factor, he said. "What we didn't do was look at going due south from Ambler to the Yukon."

One advantage of the Dalton Highway connector is a designated route through Gates of the Arctic National Park, McKinnon said.

"That route is in statute," he said. "It's in the Gates of the Arctic National Park language, and it's in ANILCA (the Alaska National Interest Lands Conservation Act)."

Whatever the route, it's going to be expensive and require the support of locals along the way.

Local relationships

Along with rural attitudes on access, another thing that's changed in recent years is the relationship between mining companies and the local communities where they work.

"Perceptions have changed," says Szumigala of DNR. "Native people are more conducive to development," as well as roads. "Maybe enough Natives have worked at Red Dog so they see it as a good thing, not just a big corporation coming in and taking something away from them."

The Native corporations have also gotten more sophisticated about providing services for remote mines, to create local jobs.

"Calista's done that with camp services," Szumigala says. "Even if the project stays at the exploration stages, it's still creating jobs."

For NovaGold, working with local communities has been a big focus that grew out of the backgrounds of its leaders, says Johnson. The president, Rick Van Nieuwenhuyse, Johnson himself, and NovaGold's vice president for exploration, Joe Piekenbrock, all worked for mining companies in Alaska for decades, before forming NovaGold in 1998.

At Ambler, the company contracted with NANA to use a camp site associated with Bornite, for example.

"We feel it's critical to involve the local communities," Johnson says. "We understand their interests and long-term objectives, and those interests are in alignment with ours.

"The Ambler opportunity," he continued, "was kind of brought to NovaGold in a sense because Kennecott and Rio Tinto saw how we worked with the local communities."

If NovaGold makes a go of Ambler, then Rio Tinto has an option to take back a controlling 51 percent interest in the project, just as Placer Dome is in the process of reclaiming its majority stake and control at Donlin Creek, in the wake of NovaGold's success there.

"NovaGold turned Donlin Creek from a back-burner project to one of the best in the world," says Alaska geologist and Mining News columnist Curt Freeman.

Losing control after that success may sound like a bad deal for the smaller company.

But having a bigger player as a partner can be a big plus when it comes to financing big projects. NovaGold's market capitalization is just $400 million.

"Kennecott has staying power," Freeman says. "If you're somebody like NovaGold, you've got somebody standing next to you - and there's nobody bigger than Kennecott."

Once Ambler gets going, there could be a real upsurge in the region, with Bornite and other deposits more likely to be mined, Freeman notes. "If you get the critical mass of a mill and a concentrator, a lot of them look a lot better."