Miners regroup in 2014 field season

The din of mineral industry activity that is normally a part of the summer months in Alaska is decidedly muted this year as the global mining industry attempts to lift itself off the bottom of a plus-18-month-long slump.

Some Alaska projects are moving forward but most field budgets are small with commensurately reduced goals attached. Larger mining companies, many under new management, are rapidly shedding non-core assets while revising budgets and timeframes for exploration, new development and planned operational upgrades. In fact, financial giant PricewaterhouseCoopers recently noted that nearly half of the largest 40 global mining companies have replaced their CEOs in the last two years. Their activities are being directed by a large crop of new CEOs and Presidents who have risen to their position largely because of strident shareholder demand for more profitable, more efficient operations.

The fallout of this de-risking is tangible: after a record $40 billion in write-downs in 2012, the industry topped that by writing down an additional $57 billion in 2013! With falling metals prices, some of this record write-down came from what has euphemistically been referred to as "de-recognizing" of mineral reserves - recalculating reserves using lower commodity price projections.

Gold's 22 percent price decline in 2013 meant that gold mines and projects were hit particularly hard by this de-recognizing, with about 37 million ounces disappearing in 2013 from the balance sheets of the top 40 mining companies.

Not surprisingly, these impairments hit companies operating in higher cost developed countries (U.S., Canada, Australia, South Africa) much harder than those in emerging market countries.

For the top 40 companies, net profits from operations in emerging market countries clocked in at an impressive $24 billion compared with a loss of $4 billion from operations in developed market countries.

Perhaps equally important, emerging market countries contributed 60-80 percent of the new reserves booked in 2013.

But the lure of emerging market countries is not all wine and roses.

By definition, emerging market countries expose companies to significantly higher political, regulatory and business risks.

Resource nationalism within these emerging market countries has resulted in an increasing trend of governments looking to maximize returns from their natural resources by taking a larger carried interest in operations, imposing windfall taxes, production royalties or unilaterally approving other "revenue generating" measures.

Many of these costs are not imposed on a project until it reaches an advanced stage of development or is actually in production, both of which serve to put large amounts of committed capital, equipment and manpower at risk without assurances that cash flow generated will be available to repay up-front costs.

So where can companies find a developed market jurisdiction (lower risk) where the chances of discovering high quality projects are still high? Thought you would never ask! This is where Alaska has a nearly unique role to play in this shifting global market.

Alaska is unquestionably under-explored and well-endowed with a wide array of high quality mineral deposits.

This combination of attributes increases the chances that an exploration discovery will be made and also increasing the chances that a new discovery will lead to development and profitable production.

Equally important, Alaska's political and business risks are well understood and are not subject to drastic or recurrent modification at the whim of cash-starved governments.

With commodity prices soft and equity markets for mining companies in the tank, there has never been a better time to invest in a place like Alaska.

If it seems too early to do so, remember what financial adviser Howard Ruff said: "It wasn't raining when Noah built the ark!"

Western Alaska

Teck Resources Ltd. and partner NANA Inc. announced the findings of a $1.7 million study its Red Dog mine that evaluated engineering, geotechnical, environmental and other aspects of a possible 52-mile (84 kilometers) long pipeline to carry effluent from Red Dog Creek to the Chukchi Sea.

The effluent pipeline study was conducted under a 2008 Settlement Agreement and Consent Decree, which resolved litigation with the EPA under the Clean Water Act.

Under the consent decree, Teck Alaska agreed to review the feasibility of constructing a pipeline to carry effluent from the Red Dog mine along the DeLong Mountain Transportation System to a marine discharge point at or near the port site on the Chukchi Sea.

That pipeline evaluation work determined that an underground pipeline is not a technically feasible option because it would be vulnerable to breakage due to ground movement caused by seasonal ground freezing and thawing.

Engineering and environmental studies determined that an above-ground pipeline is also not a viable option.

While potentially technically feasible, there were no demonstrable environmental benefits, rather it was determined that there would be increased environmental risks and impacts associated with pipeline construction and operation, energy use and emissions, and potential effects on caribou migration.

Further, the estimated $261 million capital cost of an above-ground pipeline would be prohibitive.

As stipulated in the Consent Decree, Teck will pay a civil penalty of $8 million in connection with the decision not to construct the pipeline.

That's correct Dorothy, choosing the option that eliminates potential pipeline-related impacts over a 52- mile (84 kilometers) length will end up costing Teck and NANA $9.7 million!

Linux Gold Corp. announced that an eight-day soil auger placer and lode exploration program is being planned for its Dime Creek gold - platinum property on the Seward Peninsula. The phased reconnaissance exploration program will evaluate several existing placer mine pits in order to gather information to plan and initiate a placer resource definition program. Historic production from the Koyuk District was largely from Dime Creek area where production records and other sources indicate production of 40,000 to 60,000 ounces of gold and 105 ounces of byproduct platinum from 1915 to 1955.

In a month full of pipeline news, Donlin Gold LLC, the operating company equally owned and supported by subsidiaries of NovaGold Resource Inc. and Barrick Gold Corp., submitted a right-of-way lease application for a proposed natural gas pipeline to the site of the proposed Donlin mine project.

The 14-inch diameter pipeline would originate at the west end of the Beluga natural gas field approximately 30 miles northwest of Anchorage and run 315 miles to the proposed mine site.

The planned 315-mile-long pipeline will cross a variety of lands, with about 207 miles located on State of Alaska lands.

The partners hope to begin pipeline construction in 2016, dependent on receipt of appropriate authorizations, with the goal of delivering liquefied natural gas to the mine site by mid-2019.

A feasibility study completed in 2011 envisions a 53,500-metric-ton-per-day mill producing an average of 1.1 million ounces of gold annually at a cash cost of $585 per ounce for 27 years.

The mine would consume roughly 85 megawatts of electricity, enough power for a city of around 120,000 people.

The U.S. Army Corps of Engineers is currently preparing a draft environmental impact statement, which it expects to publish around August 2014.

Northern Dynasty Minerals Ltd. announced that the Pebble Limited Partnership filed suit in U.S. District Court for Alaska to halt a regulatory process initiated by the U.S. Environmental Protection Agency under the Clean Water Act and designed to eliminate development of the Pebble project.

The Partnership complaint asserts that, in the absence of a permit application by Pebble Limited Partnership, EPA's Section 404(c) regulatory process initiated on February 28, 2014 exceeds the federal agency's authority under the Clean Water Act and violates the Alaska Statehood Act among other federal laws.

The State of Alaska agreed, filing as an intervening party.

Alaska Attorney General Michael Geraghty stated that "Perhaps the most troubling aspect of the EPA seeking to veto a hypothetical project before any permit application has been filed, is that it sets precedent for the EPA to take land anywhere in the United States and prematurely limit development of a valuable resource." The unprecedented action taken by EPA is now opposed by not only the Pebble Partnership and the State of Alaska, but by a growing list of Alaska businesses, Native groups and civic organizations who have called on EPA to stop its unprecedented, unilateral and pre-emptive regulatory process.

Redstar Gold Corp. announced that recently raised funds will be directed to a surface work program at its Unga gold project this summer, to be followed by a drilling program later this year, and into 2015. Plans for the program are under development.

Southeast Alaska

Constantine Metal Resources Ltd. announced that crews have commenced mobilization for the 2014 drill program at the Palmer volcanogenic massive sulfide project near Haines.

The work is part of a $6.2 million budget for 2014 funded by joint venture partner Dowa Metals & Mining Co. Ltd. of Japan.

The 2014 exploration program plans for a minimum of 10,000 meters of drilling, and will include 3 drill rigs, all of which are expected to be in operation by early June.

Two drill rigs will be dedicated to expansion of the South Wall resource with holes targeting zones on nominal 100 meter step-outs.

This includes testing a large conductive zone located immediately down plunge of the existing deposit that was modeled from downhole geophysical data.

The third drill will test separate property wide targets.

Other work planned for the 2014 season includes construction of a four-kilometer supply road and continued environmental and geotechnical studies.

The project currently hosts a drill inferred resource of 4.75 million metric tons grading 1.84 percent copper, 4.57 percent zinc, 0.28 grams per metric ton gold and 29 g/t silver.

Heatherdale Resources Ltd. announced Alaska Gov. Sean Parnell has signed into law a bill authorizing the Alaska Industrial Development and Export Authority to provide up to $125 million in financing for infrastructure and construction costs at the Niblack volcanogenic massive sulfide project on Prince of Wales Island.

The bill allows the Alaska Industrial Development and Export Authority to issue bonds to help finance the cost of constructing key infrastructure, including facilities at the project site on Prince of Wales Island as well as a mineral processing mill and an associated dock, loading and related infrastructure facilities at the Gravina Island Industrial Complex near Ketchikan.

The passage of the bill does not commit Alaska Industrial Development and Export Authority or the State of Alaska to any action.

Alaska Industrial Development and Export Authority must still go through its conventional project evaluation and due diligence process prior to authorizing infrastructure financing for the project.

Not to be outdone, Ucore Rare Metals reported that Gov. Parnell has signed into law a bill authorizing the Alaska Industrial Development and Export Authority to provide up to $145 million in financing for surface infrastructure and construction costs at the Bokan - Dotson Ridge rare earth element project on Prince of Wales Island.

The Bokan provision of the bill authorizes Alaska Industrial Development and Export Authority to issue bonds to finance the construction of key infrastructure for the project, including processing and above ground facilities.

The company indicated that the funding arrangement would shift almost two-thirds of the project's capital costs off the company's books and into an 11-year pay-back period, thereby improving short and long-term project economics.

The passage of the bill does not commit Alaska Industrial Development and Export Authority or the State of Alaska to any action.

Alaska Industrial Development and Export Authority must still go through its conventional project evaluation and due diligence process prior to authorizing infrastructure financing for the project.

EDITOR'S NOTE: This article has been corrected to state that Donlin Gold LLC submitted a right-of-way lease application for a proposed natural gas pipeline to the site of the Donlin Gold mine project. Previous version incorrectly said the application was for a liquified natural gas pipeline.

Author Bio

Curt is President of Avalon Development Corporation, a mineral exploration consulting firm based in Fairbanks, Alaska. He is a U.S. Certified Professional Geologist with the American Institute of Professional Geologists (CPG #6901) and is a licensed geologist in the State of Alaska (Lic. # AA 159).

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