Pogo mine headed for first-quarter startup

Teck-Pogo Alaska is back on track to achieve first production this quarter at the Pogo gold mine project near Delta Junction after clearing up a dispute that erupted last year with Golden Valley Electric Association over electricity rates.

Teck-Pogo complained to the Regulatory Commission of Alaska in October that GVEA planned to renege on a contract the two companies entered in January 2005 in which GVEA agreed to provide up to 13 megawatts of power to Pogo during its operating life and binding the mine's owner to a yearly minimum payment.

Under the contract, GVEA was not required to provide more than 2 megawatts of power to the mine during the first six months of 2006, according to the complaint.

When Teck-Pogo pushed forward the mine's completion date, mine managers asked for more than 2 megawatts of electricity earlier than July. GVEA answered that it would have to charge a much higher rate because the demand would require the use of rarely operated power plants that were expensive to run.

In December, the RCA decided to investigate the complaint and scheduled an initial hearing Jan. 24.

Two agreements in one stroke

But GVEA announced resolution of the dispute Jan. 13, after renegotiating a power sales agreement for the purchase of electricity from Aurora Energy's power plant on the Chena River in downtown Fairbanks.

GVEA said the new contract replaced the original one negotiated as part of the sale of the City of Fairbanks utility system in 1997. Aurora Energy has challenged the original contract before the RCA since 2003. The new contract, which is subject to RCA approval, resolves not only the dispute with Aurora Energy but also the more recent difficulty with Teck-Pogo, GVEA said.

"The Holy Grail in business ethics is negotiating the win-win agreement. This is a four-way win," said GVEA President and CEO Steven Haagenson. "It is a win for Aurora Energy, a win for Pogo, a win for the RCA and a win for Golden Valley."

RCA spokeswoman Grace Salazar said Jan. 17 the commission had received no notification of a settlement between GVEA and Teck-Pogo and still planned to conduct a pre-conference hearing Jan. 24.

But Pogo spokesman Karl Hanneman said GVEA and Teck-Pogo were working on documents to submit to the RCA Jan. 18.

"They (GVEA) have agreed to provide us the electric power we need to operate the Pogo facilities, and they agreed to provide it at the tariff rate we agreed to initially, which is what we requested from the RCA," Hanneman said.

Way clears for first gold

The agreement paves the way for Pogo, located 85 miles southeast of Fairbanks, to come on line in the first quarter and gradually ramp up to full production by July, he said.

Pogo is estimated to contain 7.7 million tons of ore that should yield just under a half-ounce of gold per ton. The mine will employ 240 permanent workers. Most positions have been filled, but managers are still recruiting underground miners.

Commissioning is under way on the mine's 2,500-ton-per-day mill, while construction continues underground on the conveyor, ore bin and feeder, said Hanneman, who is Pogo's manager of public and environmental affairs and special projects.

Commissioning is the process of going systematically through the plant to confirm that it is set up to operate according to its design.

"The objective is to synchronize the process for gold recovery," he explained. "We've put the first ore into the mill but we have no product yet. But we're certainly going to make our target to begin operation in the first quarter."

Underground, poor ground conditions continue to slow the advance of construction at Pogo, but crews are resolving the problems by applying shot-crete, a cement paste blown onto the walls in a spray application to strengthen tunnels, shafts and other mine structures.

Though its mill is relatively modest in size, Pogo is expected to produce 400,000 to 500,000 ounces of gold a year because of the high quality of its ore.

With capital costs ranging upwards of $330 million, the Pogo mine is expected to yield commercial quantities of gold for at least a decade with an average life-of-mine direct operating cost of about $150 per ounce. Gold currently sells for about $558.50 per ounce.

To be milled on site, Pogo's gold will be produced as bullion and cast as gold doré, or bars, ranging in size from several hundred to 1,000 ounces. It will then be shipped outside Alaska for additional processing.

Teck-Pogo is a subsidiary of Teck Cominco Ltd., which owns a 41 percent interest in the Pogo deposit. Co-owners are Sumitomo Metal Mining Co. Ltd. which owns a 51 percent stake and Sumitomo Corp., which holds 9 percent interest in the mine.