The mining newspaper for Alaska and Canada's North
The mining newspaper for Alaska and Canada's North
Alaska mines and projects attract more investment in exploration, development and production on wave of strong metals prices
Alaska's mineral industry set a new spending record of about $4 billion in 2007, up 13.3 percent from the value of the industry's expenditures in 2006, according to an 89-page report released Nov. 5 by the Division of Geological & Geophysical Surveys and the Office of Economic Development.
The industry's reported value, according to DGGS, is calculated by combining the amount spent on exploration and development with the production value of mines in Alaska.
While 2007 was a banner year for Alaska's mining industry, the trend is not expected to carry through 2008. Nearly 60 percent of the industry's value comes from production at Teck Cominco Ltd.'s Red Dog Zinc Mine. Zinc, which sold between $1 and $1.80 per pound in 2007, has decreased to about 50 cents per pound.
The State of Alaska and municipalities received a total of $142.4 million in royalty and tax payments from the mineral industry in 2007, down about $30 million from the record set in 2006. The tax decrease is attributed to higher operating costs that more than offset the higher commodity prices for the year. The reduced profitability in 2007 resulted in 31.2 percent decrease from 2006 in mining license taxes paid to the state.
The state collected $34 million in other government-related revenues, including an annual user fee of $17.7 million paid to the Alaska Industrial Development & Export Authority for Red Dog Mine's use of the state-owned DeLong Mountain Regional Transportation System. The Alaska Railroad Corp. also raised $9 million for moving coal and another $6 million for moving sand and gravel. The Alaska Mental Health Trust received about $1 million in rents and royalty payments.
Alaska's mineral exports set another record by topping $1.3 billion in 2007, up 10 percent. Zinc ore ranked as the highest value commodity exported from the state.
Benefits felt across the state
Mining companies paid about $16 million in taxes to city and borough governments, and were the largest taxpayers in the Fairbanks North Star, Denali and Northwest Arctic boroughs, as well as the City and Borough of Juneau.
Alaska Native corporations also recorded record profits from mining last year. Teck Cominco Ltd. paid NANA Regional Corp. $58.1 million in fiscal 2007 as a net smelter royalty from ore produced at Red Dog, nearly double a 2006 payment of $29.7 million. NANA shares 62 percent, or about $36 million, of the royalty payments with the other Alaska Native corporations across the state.
Alaska's minerals industry provided 3,558 full-time-equivalent positions during the year, this is the highest mining job rate in more than a decade. The mining industry played an important role in employing residents of rural Alaska. The industry employed people from more than 100 communities across the state. The average weekly wage for metal miners in Alaska was about $1,578, or about $82,000 a year, in 2007.
95 percent of revenue from production
Alaska's mineral production value of $3.367 billion eclipsed all previous years on record, with metals accounting for 95 percent of that value. Production volumes rose for all commodities, except coal and rock. Strong metal prices also contributed to record production values for Alaska's minerals.
Zinc, at 60.84 percent, was by far the largest contributor to the state's production. Gold contributed 15.18 percent, lead at 11.57 percent, silver at 8.03 percent, industrial minerals made up 3.02 percent, coal and peat contributed 1.36 percent, and 0.01 percent of production in the state came from copper.
The Red Dog zinc-lead mine in Northwest Alaska contributed more than 70 percent to Alaska's production values for 2007. The Greens Creek silver mine in Southeast was the state's second largest producer at 11.8 percent. The Fort Knox and Pogo gold mines in Alaska's Interior had a combined value of 12.5 percent. All other production in the state made up the remaining 5.6 percent.
Due to a sharp fall in base-metal prices, Alaska's production revenues are expected to fall significantly in 2008. Teck Resources Ltd. reported that revenues from Red Dog for the first nine months of 2008 were down about 50 percent from the same period in 2007. The company expects an even larger dip in the fourth quarter due to the shipping season from the mine ending earlier than expected due to adverse weather conditions, resulting in less-than-expected zinc and lead ore being sent to market at the end of the season.
Gold production in the state is expected to increase in 2008 due to rising output at the Pogo Mine. NovaGold Resources' Rock Creek gold mine near Nome began its ramp-up to full production in September. On Nov. 24, NovaGold announced that it has suspended operations at Rock Creek due to complications in meeting state and federal regulatory requirements. The company said mechanical problems and financial considerations also contributed to its decision.
Placer gold production decreased to 53,849 ounces in 2007 from 60,382 ounces in 2006. Rapidly increasing operating costs had a negative effect on operations. However, recreational placer mining continues to increase with improved gold prices, climbing to 1,882 ounces produced in 2007, compared with 1,133 ounces for 2006.
Sales of sand and gravel in 2007 totaled 14.2 million tons, up slightly from 14 million tons in 2006. Rock production was 2.2 million tons, down from 2.4 million tons in 2006.
Coal production also fell to 1.27 million tons from 1.4 million tons in 2006. Usibelli Coal Mine said production is expected to be about 1.5 million tons in 2008, and if the market demanded, the Healy operation could easily double production in the future.
Southwest tops exploration regions
Exploration spending in Alaska during 2007 reached $329.1 million, 84 percent higher than the $178.9 million spent on exploration in 2006. At least 33 projects had expenditures of $1 million or more and 85 projects reported exploration spending in excess of $100,000.
Nearly 55 percent of the $329 million spent on exploration in Alaska in 2007 was in the Southwest region of the state. The Pebble copper-gold-molybdenum project was the largest exploration project in Alaska during 2007 in terms of dollars spent. The Donlin Creek Project, with more than 230,000 feet of core drilling, had the largest exploration drill program in the state. Both projects are located in Southwest Alaska.
The Pebble and Donlin Creek projects were the leaders of another robust exploration season in the state in 2008. Both projects are anticipating feasibility studies in 2009.
Companies explored for a wide variety of commodities. Precious metal exploration topped the list at nearly $156 million. Coming in at more than $123 million, polymetallic deposits was the other large exploration target. Explorers spent about $39 million searching for base metals in Alaska in 2007. About $8 million was spent on coal and peat exploration, and about $3.5 million was spent on various other commodities.
Because of a significant decrease in metal prices and low investor confidence due to the global financial crisis, many exploration companies scaled back projects in the second-half of 2008 and a significant drop in exploration spending on small and early-stage projects is expected for 2009.
Development drops as Pogo comes online
Mineral development projects were spread across the state, with total development spending of $318.8 million in 2007. That's 35.7 percent less than record spending of $495.7 million in 2006. The development of precious metal projects accounted for 75 percent of spending in 2007.
Development in Eastern Interior dropped nearly 80 percent, from $249.9 million in 2006 to $50.2 million in 2007, due primarily to the completion of construction at the Pogo underground gold mine. Operator Teck Cominco Ltd. reported spending $17.7 million on development at Pogo in 2007.
Fairbanks Gold Mining Co., a subsidiary of Kinross Gold Corp., reported $30 million spent on development at the Fort Knox gold mine north of Fairbanks. The money was spent on stripping in the phase 6 expansion area, construction of the Walter Creek heap leach facility and construction of a SAG mill reject conveyor.
The Fort Knox operator continued construction of the heap leach facility in 2008, and anticipates completion around mid-2009. The company also has advanced phase 7 expansion at the mine. These upgrades are expected to extend the life of the project from 2012 to 2018 and double expected life-of-mine production to 2.9 million ounces.
At about $123.1 million, Southeast Alaska attracted the most spending on development in 2007. The money was spent primarily on construction and development at the Kensington gold project and ongoing development at the Greens Creek silver mine. These two projects near Juneau employed about 337 people in 2007.
About $92.3 million was spent on construction at Coeur Alaska Inc.'s Kensington gold project in 2007. The project employed about 292 full-time-equivalent persons in 2007 in an effort to advance the project to a producing mine.
Coeur Alaska reduced its staff at Kensington to a core group of about 40 employees at the project while it waits for a ruling from the U.S. Supreme Court concerning its tailings permits. The high court is scheduled to begin hearing the case Jan. 12. If the Supreme Court rules to uphold the permits granted to Coeur, the company anticipates finishing the construction of the tailings facilities and moving the project into production by the end of 2009.
Development expenditure in Alaska's western region was about $97 million in 2007, a 74.1 percent increase from the $55.7 million spent in 2006. Six projects reported development spending during the year, but the $78 million spent by NovaGold Resources on the Rock Creek gold project accounted for the bulk of the annual expenditures.
At the end of the third quarter of 2008 NovaGold reported that it had spent about $77 million for the year on development at Rock Creek. The company also announced that it began production at Rock Creek at the end of the third quarter. NovaGold's target is to have the mill running at full capacity by the end of 2008, and contribute about 100,000 ounces of gold to Alaska's production numbers in 2009.
Around $41.4 million was spent on development in northern Alaska, all of which was spent on Teck Cominco's Red Dog zinc mine. The remaining $7.1 million was spent on development in Southcentral and Southwest Alaska. No development occurred on the Alaska Peninsula.
"Special Report 62, Alaska's Mineral Industry 2007" is available in Adobe Acrobat PDF format from the Division of Geological & Geophysical Surveys' Web site (http://www.dggs.dnr.state.ak.us), on mini CD-ROM, or in printed version from DGGS at 3354 College Road, Fairbanks, Alaska 99709-3707.
Over his more than 16 years of covering mining and mineral exploration, Shane has become renowned for his ability to report on the sector in a way that is technically sound enough to inform industry insiders while being easy to understand by a wider audience.
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