World demand forges Alaska mining success

Robust metal prices are the most positive factor affecting Alaska's mining industry over the past year, according to Steve Borell, executive director of the Alaska Miners Association.

"Metal prices are what drives the industry," Borell said.

He said it is a significant fact that prices for base metals such as lead, zinc, copper, nickel and molybdenum are high at the same time as those for gold, silver and platinum.

In world metal pricing it is not often the case that base metals and precious metals rise simultaneously.

"Precious metals historically have been in demand in times of economic uncertainty and people wishing to hedge against political upheaval around the world," he said.

"Base metal prices, by contrast, have traditionally been driven by robust economies."

China awakens

The single largest stimulant of base metal prices is soaring demand in China, Borell said.

"The demand from China is absolutely huge; China is gobbling up resources. In the last few years China has built several major smelters that need feedstock."

Borell said China's energy needs are huge. Last year the country became a net importer of coal; previously it exported excess coal to the world market.

Driving China's demand is an improving economy coupled with privatization and capitalism successes that have boosted disposable income for the average person, Borell said. Chinese citizens have more wealth, that in some cases they want to save and protect in the form of gold, while in other cases they want things like running water and electricity in their houses, raising demand for copper pipe and wire made of copper.

India and other countries are increasing demand also, although on a smaller scale than China, he said.

It isn't just demand throughout the world that has companies looking to invest in Alaska's minerals, Borell said. Political instability and its attendant risks have made Alaska all the more attractive to mining companies.

"There are a lot of places in this world you don't want to go, and you don't want to send your employees," he said. "Companies are looking in North America instead of looking in places like Indonesia, where (employees) from Newmont are in jail."

On Oct. 23, one day after Borell spoke with Mining News, the employees of PT Newmont Minahasa Raya were released from an Indonesian jail, according to a Mineweb report. Five managers - an American, an Australian, and three Indonesians - were jailed in late September after villagers in Buyat Bay said the company's sub-sea disposal of mine tailings into the bay was poisoning the waters, making residents seriously ill. Several independent laboratory studies contradict the villagers' allegations, however, the case is still pending.

Legislative victories

The mining industry scored a win with new state legislation that allows the Alaska Department of Environmental Conservation to extend certain permits administratively. In the past DEC had to issue a new permit even if there were no changes.

Companies don't want to operate without the legal permits and become nervous if the permit is close to expiration because they don't want to operate and break the law, Borell said.

"We argued this for a long time, and DEC recognized that they needed it," he said. "The Murkowski administration said, 'hey let's do it,' they put in a bill to accomplish it, and it went through without a hitch."

The same bill established a mechanism for "permit by rule." For simple items that don't require a review, no permit is required, so long as the action is in compliance with regulations.

"DEC can write regulations, and if you as a private citizen comply with that regulation, you can do it; you don't have to have a permit in your hand," Borell said. "The regulation itself gives you all the authority you need to do some activity."

The new regulation is a great time saver for the department, for small businesses, homeowners, and in a few cases for the mining industry, he said.

Another piece of legislation, regarding financial assurance, was introduced by the state Department of Natural Resources and signed into law identifying alternate forms of financial assurance mining operations in the state can use, other than bonding.

"Bonds are one kind of financial assurance," Borell said. "Since 9/11, bonding is almost not available - for short term construction jobs maybe - but the bonding capacity of this country and the insurance capacity of this country was severely impacted by 9/11 and as a result, some other mechanisms needed to be established and that's what this allows DEC to use."

Miners were also pleased the U.S. Senate allocated $1.5 million to fund the Alaska Mineral Resources Assessment Program for 2004, a partner program with the state for geologic mapping to assess the oil, gas, and other mineral potential within Alaska by quadrangle. The allocation fell short of the $8 million per year the association had requested, but Borell said miners were pleased to see the funding.

"It's a good start-up number," Borell said. "Lots of areas have only cursory resource mapping."

Challenges ahead

New mixing zone regulations, which have been proposed by DEC, are open for public comment until Nov. 1. Treated wastewater discharges to surface waters from sewage treatment and industrial facilities including mining, seafood processing, and oil exploration or production will be governed by the regulations.

Passage of the regulations is extremely important to the future of the mining industry in Alaska, Borell said, adding that the mining industry has been working with the state on the issue for more than 20 years.

Under the proposed regulation, mixing zones in spawning areas may be permitted when they don't adversely affect the capability of the area to support fish spawning, incubation and rearing in rivers and streams. Current regulations absolutely prohibit mixing zones in fish spawning areas in rivers and streams ignoring whether the mixing zone would have any effect on spawning.

"The issue is: are the fish impacted?" Borell said.

Another huge issue for miners is tax stability, Borell said, adding that the lack of a state fiscal plan is a concern.

"I don't propose an income tax, but I oppose a sales tax," Borell said. "There is no way for the mining industry to pass the cost of a sales tax along because metals prices are dictated by the world market."

Companies must already pay a property tax on the mines, and other jurisdictions with which the Alaska mining industry competes typically have income taxes, he said.