The mining newspaper for Alaska and Canada's North
The mining newspaper for Alaska and Canada's North
Alaska mining faces ups, downs from low oil prices, budget-cutting moves
Plummeting oil prices have put Alaska residents and Alaska miners in the same boat. Suddenly, it's less expensive to top off the tank of an SUV or a haul truck, but the state budget, fueled by oil revenue, is teetering on the edge of an estimated $3.5 billion deficit. That's $10 million a day for 2015.
"We know Alaska is experiencing a significant drop in revenue - the price of oil has dropped more than 50 percent over the past six months," Alaska's new governor, Bill Walker, said during his inaugural State of the State Address.
While this oil money shortfall will likely gouge into state-funded projects across the board, from fundamental programs such as schools to the most ambitious like building a 200-mile road to the Ambler mining district in Northwest Alaska, Walker told Alaskans and their legislators that there is no reason to panic about the state of the state.
"Some might call this a crisis - I call this a challenge and an opportunity," Walker said in his Jan. 21 speech. "We have an opportunity to make impactful and constructive changes, to challenge the traditional ways of doing business."
"Now is not the time to sound the alarm my fellow Alaskans. Now is the time to pull together; to make a plan; to sharpen our focus; and to get to work," he rallied.
Natural gas pipeline
High on the list of Walker's planned initiatives is bolstering Alaska's income and lowering expenses by reducing the high cost of energy in the state, an agenda item that appeals to Alaska's residents and miners.
"This administration will not rest until Alaska is squarely on track to become an economic powerhouse, thanks to low-cost energy that will bolster and diversify our economy," the governor vowed.
He envisions a large portion of this low-cost energy being delivered to Alaskans and world markets via a large-diameter pipeline that taps vast reserves of natural gas on the North Slope.
"Under my administration we will finally begin building the Alaska gas-line to tidewater," Walker said.
Companies developing the next generation of mega-mines in Alaska, such as the Donlin Gold and Pebble copper-gold-molybdenum projects in western and southwestern Alaska, respectively, have already determined that natural gas is the most economical and environmentally sound way to fuel their operations, even if it means importing the fuel from outside of the state.
Donlin Gold LLC - an operating company equally owned by subsidiaries of Novagold Resource Inc. and Barrick Gold Corp. - believes so much in the natural gas idea that it is willing to invest $1 billion to build a 14-inch diameter pipeline spanning the 315 miles between tidewater in Southcentral Alaska and the 40-million-ounce gold deposit located in the Yukon-Kuskokwim region to the northwest.
In April, the company applied for a state right-of-way lease and a public comment period on the company's proposal closed Jan. 28.
Donlin Gold hopes to have authorizations in hand to begin pipeline construction in 2016 with a goal of delivering natural gas to the mine site by mid-2019.
The U.S. Army Corps of Engineers, meanwhile, continues its preparation of an environmental impact statement for the proposed Donlin gold mine. The regulatory agency estimates that a decision on the final EIS for Donlin will be determined in 2016.
Though the estimated 2020 startup at Donlin is likely at least three years prior to the most optimistic timeline for completion of a natural gas pipeline from the North Slope, the companies developing the mine are not dismissing the possibility of using an in-state source of natural gas.
"There may be an opportunity in the future to source natural gas from within Alaska," Novagold explains on its website.
If Walker's vision is realized, it would reverse the irony of importing natural gas into a state that has roughly 37 trillion cubic feet of this clean-burning fuel in known reserves.
In addition to an in-state supply of gas for Donlin, the governor's push to get North Slope natural gas to market could reduce the notoriously high power costs for existing Interior Alaska gold mines such as Fort Knox and Pogo and improve economics of the region's potential future mines such as Livengood gold and Globe Creek limestone.
Alaska's operating mines and other industries, meanwhile, are already benefitting from lower fuel prices resulting from less than US$50 per barrel oil.
Globe Creek limestone
In addition to building a parallel natural gas pipeline, Gov. Walker's ideas for boosting Alaska's income, understandably, are focused on getting more oil flowing through the 800-mile trans-Alaska pipeline, currently running at about 25 percent capacity. As a result, the state's mining sector has been largely lumped with Alaska's other industries such as tourism, fisheries and air cargo.
The one mining opportunity the governor did single out in his speech to lawmakers is a project few Alaskans are aware of, the world-class Globe Creek limestone deposit north of Fairbanks.
"We should be making and exporting cement north of Fairbanks given all the limestone available and the rail and highway infrastructure available," he said.
Located near the Elliot Highway about 38 miles north of Fairbanks, Globe Creek is the largest known high-purity limestone deposit in the state.
Interior Alaska currently imports about 100 tons of lime per day, a demand that is driven largely by its use as a neutralizer for water quality at the Fort Knox and Pogo mines.
In addition to supplying local needs, Globe Creek could likely supply at least 50,000 tons of lime per year to other mines in Alaska and export products overseas via the Alaska Railroad extension to Port MacKenzie, according to a 2007 rail link analysis penned by Paul Metz, a professor of geological engineering at University of Alaska Fairbanks.
The market for Portland cement made from Globe Creek limestone is considered to be at least 10 times larger than that for lime. At the time of Metz's analysis, Alaska, alone, used nearly 300,000 tons per year of this building material.
An economically competitive lime and cement plant, however, needs a reliable and low-cost source of fuel for the kilns needed to transform the limestone into a marketable product. Located adjacent to the Dalton Highway, which connects the North Slope to Fairbanks, and along the presumed path of any future natural gas pipeline, Globe Creek is positioned for any scenario that delivers North Slope natural gas to Alaska and world markets.
At a quarry rate of 3,320 tons per day, the 1.6-billion-ton Globe Creek deposit could provide limestone, Portland cement and fertilizer to Alaska and the world for more than 100 years, according to Metz's estimates.
Ambler mega-project
While getting gas to market and other economy strengthening initiatives will help the income side of the equation in the long term, cuts in state spending are more immediate steps being contemplated by Walker and state lawmakers.
The governor's first order of business was a temporary suspension of all "mega-projects being funded by the state.
"On Dec. 26, I took immediate action. I issued an administrative order directing that all 'mega-projects' stand down until we can access their overall costs and benefits to the state," said Walker.
Among the big-budget projects being re-evaluated, the Ambler Mining District Industrial Access Road is one aimed specifically at supporting mining in Alaska.
This 200-mile road would link the Ambler Mining District to world markets. Some $8 million of state funds had been earmarked for the project in a budget proposed by former Gov. Sean Parnell. The project has no such support in Walker's budget.
The Ambler road project was transferred from the Alaska Department of Transportation and Public Facilities to the Alaska Industrial Development and Export Authority in 2013.
AIDEA - a private corporation created by the Alaska Legislature in 1967 to promote, develop, and advance economic growth and diversification in Alaska - is not solely dependent on state funding to advance the Ambler Road, or any of the other projects in its portfolio.
In fact, the success of AIDEA's investments in large infrastructure projects like the Delong Mountain Transportation, a road and port facility linking the Red Dog zinc mine to world markets, are profitable for the authority and state.
"These revenues not only cover our operational expenditure; we also pay an annual dividend of up to 50 percent of our revolving fund net income to the State of Alaska general fund," said AIDEA external affairs executive Karsten Rodvik.
This dividend equaled US$17.65 million for 2014, bringing the total AIDEA has paid to the state's general fund to US$373.5 million.
To move forward with the Ambler Road, AIDEA will need the funds to complete an Environmental Impact Statement for the project.
If federal agencies approve the road project for permitting, then AIDEA will re-evaluate whether building the road is a good investment for the authority and state.
The Upper Kobuk Mineral Projects, a partnership between NovaCopper Inc., a mineral exploration company, and NANA Regional Corp., the Native regional corporation that represents the Iñupiat of Northwest Alaska, would likely provide the financial base for repaying the cost of building a road to Ambler.
In 2013, NovaCopper and AIDEA entered into a memorandum of understanding that allows AIDEA to investigate various ways to fund the construction and maintenance of the Ambler Road and create the framework by which NovaCopper will repay the investment by developing mines at one or more of its high-grade copper deposits in the area.
The two most advanced deposits, Arctic and Bornite, currently has more than a 9.5 billion-pound copper-equivalent resource, including zinc, lead, silver and gold by-products at Arctic.
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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