2010 Mining Explorers: Mineral industry activity rebounds

A highlight for 2010 has been the startup of the Kensington gold mine in June. I first testified at a hearing on the Kensington project in Haines in 1990. Gold price fluctuations, environmental group attacks, financial markets, etc. all played a role in the saga. Coeur Chairman and CEO Dennis Wheeler should be commended for his diligence and determination to make Kensington into a mine.

However, I am disappointed about one item at Kensington, and it does not involve the quality of the orebody, the work of the company or the work of the permitting agencies.

That disappointment is over the jobs that the mine was not able to create.

In an effort to appease environmentalist objections, Coeur at one point agreed to not use any cyanide at the mine.

Cyanide, like many other chemicals, must be stored and managed properly to ensure safety of personnel and the environment.

This is currently being done in Alaska and all around the country.

What no cyanide use at Kensington means is that there will no cyanide circuit in the mill; there will be no refinery/gold room (and no construction jobs to build the circuit or refinery); and there will be no need for special security personnel.

My estimate is that at least 24 jobs for the entire life of the mine are now located somewhere outside of Alaska.

That is "value-added" processing of Alaska's resources that should have occurred here in the state.

What about the environmentalists? They still opposed the project, all the way to the U.S. Supreme Court where they lost.

With the addition of the Kensington Mine, Alaska now has six large mines - one coal mine and five metal mines. Each of these mines is now operating at a steady pace, and I and all Alaskans can be proud of these operations. Each is a credit to its respective company and to the robust permitting and oversight processes that the State of Alaska has developed.

My use of the phrase "large mines" is applicable for Alaska, but it is relative.

In August the Alaska Miners Association organized a mining tour of South Africa.

While there, we visited mines producing copper, platinum/palladium, gold, diamonds, and coal.

Each of those mines had more than 1,000 employees, which add up to more than all mining and exploration jobs now in Alaska.

To continue with the comparison, one day we visited the Tautona deep underground gold mine.

Traveling the 165 kilometers, or about 102 miles, back to Johannesburg from Tautona, I counted 17 head frames (the large structure housing the sheaves and hoist for an underground mine with a shaft) of gold mines.

On the day we visited the Kleinkopje coal mine, I counted 11 head frames of coal mines and seven large draglines used to remove overburden.

On the day we visited the Sasol plant that converts coal into diesel fuel and other products; I counted seven coal-fired power plants, each with six 600-megawatt generators.

By comparison, total electricity demand in the Anchorage area is about 300MW. As I said, large is a relative term.

Another Alaska highlight this year was that the Red Dog mine in northwest Alaska received its water discharge permit, which allowed it to continue operating.

The uncertainty for Red Dog was settled when the Environmental Protection Agency was able to assure Red Dog that the water discharge permit being issued was legally defensible.

Everyone knew it was environmentally sound.

However, environmental groups, representing a few disgruntled local residents, had appealed a minor technicality in the EPA permit that the mine had to have.

EPA determined that the mine could operate under criteria previously approved by a court decision.

Teck then announced that it would begin development of the next mining area, thus preserving approximately 500 jobs in rural Alaska.

This year has again seen numerous small family placer gold mines operating. These mines did not suddenly start up because the price of gold was increasing. Some of these mines have been operating for many years. Others have spent several years exploring, applying for permits, arranging bonding, obtaining financing, etc., and they are now finally able to begin mining. The costs and challenges of this process often keep many very competent potential miners out of the business. In the past many skilled equipment operators were able to begin mining within a few months of making that decision. Those days are gone.

Sand and gravel mines all around the state are operating to support local roads and construction projects. Such projects are often driven by government appropriations, and the outlook for such funds in the future are of concern.

It appears that the amount of mineral exploration in 2010 will return to the levels we saw before the worldwide financial meltdown of 2008-2009. In 2009 a total of 17 exploration projects each spent more than $1 million. This was down from 29 projects in 2008. All indications are that the level of exploration expenditures this year will return to the previous levels. During 2009 if the exploration companies did not have their financing in place by early spring, many were not able to begin field work until late in the summer, if at all. This year is definitely better.

The outlook for the future, both near term and long term, continues to be excellent.

Alaska is known as the home of a long list of world-class ore deposits.

Alaska also has excellent geology and when compared with other states and most countries in the world, the state is effectively un-explored.

There has been exploration here for more than 100 years but nowhere near the level of exploration seen in other locations.

Reasons for this include the state's short exploration season, a tundra mat that hides rock outcrops, snow cover for much of the year, lack of roads, added cost of operation, and serious land tenure uncertainty for several decades following the 1968 discovery of oil at Prudhoe Bay.

Finalization of Native and State land transfers greatly reduced the land tenure uncertainty, but the constant pressure from environmental groups to lock up more land remains a concern.

Other positive factors are the State of Alaska's permitting and environmental systems. They are thorough and robust, but they are well defined and not moving targets. The State has competent managers in each of the departments that are involved in project permitting. And they focus on the law and science of their respective jobs without personal agendas as a driving force. This has been the norm for the current administration and for the past several administrations.