Printer Friendly

Great expectations still spur panhandle miners.

In Southeast, the A-J and Kensington mines, as well as numerous other prospects, hover on the brink of development.

In a room full of miners, you'll find a room full of optimists. A cheerful outlook is what mining companies in Southeast Alaska say is needed as they continue to weather rock-bottom mineral prices and local, state and federal regulatory processes.

The two companies attempting to reconstitute underground hard-rock gold mining in the Juneau area see a light at the end of the tunnel. Two lights, actually. A general agreement that gold prices worldwide have hit a several-year low and have nowhere to go but up, and continued forward movement in obtaining permits are seen as encouraging signs for Echo Bay Alaska Inc. and Coeur Alaska.

Together the mining firms have a 50-50 split interest in the Kensington gold mine, about 45 miles north of Juneau near Lynn Canal. Echo Bay, based in Edmonton, Alberta, also is the sole owner and developer of the historic Alaska-Juneau mine just south of the Capital City's downtown area.

Echo Bay already has about $80 million invested in the two projects, the company says. In January, Echo Bay acquired a 15-percent interest in the A-J mine held by Toronto, Ontario-based Watts, Griffis and McOuat Ltd.

Industry analysts say both the A-J and Kensington gold mines require higher gold prices to be successful. John Tumazos, an analyst with Donaldson, Lufkin and Jenrette in New York, says he has examined Echo Bay's prospects and believes the operation is feasible with gold selling at $360 an ounce for 1992-1994 and at $375 an ounce for 1995-2000, even though some investors might predict a lower price of $325 to $350 per ounce.

Of the $325 to $350 per ounce price range, Tumazos says, "Clearly at such prices the development of Echo Bay's two Alaskan projects would not be justified, and under such a dire scenario, the company might choose to write off its investment in those properties."

He adds that rising mining costs in South Africa, North America and Australia are likely to prevent an extended period of such unfavorable gold prices. Tumazos notes that even at a depressed price of $360 an ounce, Echo Bay is a viable, albeit not wildly profitable business concern.

Echo Bay in the past two years has worked vigorously to reduce its debt from $415 million in June 1990 to $257 million for the quarter ending March 31. According to Tumazos, the debt-reducing measures have helped the company position itself to "build a war chest for its two Alaska projects."

Poor Prices. Tumazos reports that Echo Bay is reluctantly filing with U.S. and Canadian securities officials for a $100 million stock offering to gather more cash for debt reduction. The reluctance comes because Echo Bay's stock, at around $7 per share on markets in mid-July, was half its value of two years ago and down from a high of around $30 per share in 1987.

In addition, mining companies are not selling forward as much gold as they have in the past for fear of locking in the metal at current low prices, Tumazos says. Forward selling of future gold production, or hedging, is used by mining companies to garner cash for expansion funding, in lieu of a bank loan.

Carl Campbell, a metals analyst for A.G. Edwards in St. Louis, Mo., says it's not known when gold prices may turn around, though some analysts and gold companies believe bottom was hit this year at $335 per ounce. In midsummer, the metal traded at around $346 per ounce.

"Something has to change before it gets better," Campbell says. "People have to have a reason to want gold again."

With a variety of high interest-bearing financial products available -- such as bonds and securities -- gold is not revered as a fool-proof investment or safe haven anymore, he notes. "There's still a market for gold; you can always sell your gold. Even at today's price, you can squeeze out a little profit on some properties. I think the two up there (A-J and Kensington) are pretty marginal at today's prices," Campbell says.

On the positive side of the ledger, world gold production is slowing, says metals analyst Vahid Fathi with Kemper Securities Inc. in Cleveland, Ohio. Soviet gold that was hoarded, then satiated markets at the end of Mikhail Gorbachev's reign, has been absorbed into the market, Fathi says, and production in the Russian Republic is going flat, he explains.

"Next year at this time we could realistically look at prices of $400 an ounce or higher. Fundamentally, things are looking better for gold," Fathi adds.

The analyst's optimism is shared by Echo Bay's chairman, Robert Calman, who visited Juneau in July hoping to build interest, support and investors' confidence in the A-J.

"We're not here to fool around. We're here to bring that grand old mine back into production," Calman told a joint audience of the Juneau Chamber of Commerce and the Alliance for Juneau's Future, a mining support group. "We think the supply-demand fundamentals of our business are good."

Halting Progress. But more than just economics and gold prices will enter into the final decision on whether the A-J and Kensington mines begin producing again. Both projects are traversing a gantlet of federal, state and local reviews and permit applications. Both also expect legal challenges to any agency approval for the mines.

"There's probably a fairly good chance that at least a couple of the permits would be appealed," says Rick Richins, vice president of Coeur Alaska, Echo Bay's partner in the Kensington project. Coeur Alaska is a wholly owned subsidiary of Coeur d'Alene Mines of Idaho.

Richins says the Kensington's application is likely to be the first to go through a revised evaluation by the Juneau City-Borough's planning commission, which probably will prompt an appeal to the municipal assembly.

Assistant community development director Cheryl Easterwood says a revised schedule for the Kensington permit application would have the planning commission ruling on the permit in late October. If approved, Richins says construction could start as early as next spring, with a work force of 550.

Coeur Alaska also is considering additional exploration work to continue through the end of this year. Much of the exploration to date has been checking old adits, or mining tunnels, left from the 1920s and 1930s when the mine was first worked.

"We're pretty much picking up where the old-timers left off," says Richins. "Where their techniques didn't allow them to continue, we are."

Operating plans for the Kensington call for mining 4,000 tons of ore a day at the remote site, with around 200,000 ounces of gold recovered annually. Workers would be flown by helicopter from Juneau or Haines on a two-week on, one-week off schedule, according to Richins. He estimates an annual payroll of $20 million, with 340 full-time employees.

Although the U.S. Forest Service issued a record of decision based on the final environmental impact statement in January that gave the mine a green light, several regional environmental groups appealed the decision.

The appeal, filed by the Sierra Club Legal Defense Fund on behalf of Southeast environmental groups, United Fishermen of Alaska and the Alaska Native Brotherhood and Sisterhood in Haines, was turned down in late July. It charged that Forest Service's environmental impact statement lacks adequate information to determine the effects the mine could have on Lynn Canal salmon fisheries and wildlife in the area.

In the meantime, the Forest Service has approved the plan of operations for the Kensington, but the company still has a number of state and federal permits yet to be awarded, including a pollution discharge permit from the federal Environmental Protection Agency.

The original plan had been to use a settling pond for mine wastewater, with no treatment before discharge into Lynn Canal. In the Forest Service record of decision, new treatment requirements include dechlorination and enhanced pond settling, with water flowing through screening devices, or baffles, so that treated water spends more time in the pond before it is discharged into the canal.

A-J's Angst. Echo Bay is "bullish" on the A-J, according to the company's environmental compliance manager, Frank Bergstrom. While depressed gold prices have forced the company to reconsider its grinding process to extract the mineral from the 22,500 tons of ore it plans to mine daily, "Even at these low prices it's an economically viable project," he says. Plans call for annual output of around 400,000 ounces of gold, according to Bergstrom.

In its heyday, the A-J employed more than 1,000 men and produced $80 million in gold from 1913 through 1944, when wartime labor shortages closed the operation permanently. Current plans call for employing 450 people, with an annual payroll of $21 million.

Echo Bay has yet to receive any of almost 50 major permits required for operation, although the federal Bureau of Land Management issued an environmental impact statement for the project in May.

The company's operating plan calls for dumping waste rock generated during the mining process behind a 345-foot-high dam at the head of Sheep Creek Valley. Over the proposed 13-year life of the A-J, about 100 million tons of ore tailings would fill in the valley -- one of the concerns of a citizens' group opposed to the mine.

"They're not doing anything to treat it other than let it sit," says Laurie Ferguson Craig, president of the board of directors of Alaskans for Juneau. The environmental non-profit group is the major critic of Echo Bay's plans for the A-J.

"We haven't seen a proposal offered yet that convinces us that it can be done environmentally soundly or economically soundly," Craig says. "They end up burying the valley and eliminating the fish population in the stream."

Craig points out that Sheep Creek is home to Dolly Varden and char. Alaskans for Juneau also is concerned about potentially toxic chemicals Echo Bay plans to use in the ore-separation process. The firm expects to ship the chemicals monthly by large up Gastineau Channel.

The EPA also has filed notice of opposition to Echo Bay's plans to fill Sheep Creek Valley. The agency in July sent a letter of opposition over the company's application to the U.S. Army Corps of Engineers to build the dam, as well as to fill in 15 acres of tidelands near Sheep Creek on Gastineau Channel for mine-operations buildings and a dock.

Juneau's planning commission voted to require additional studies of noise from the proposed mine. Echo Bay previously commissioned a noise study from a Seattle-based consultant, but residents living near the A-J, some within one-quarter mile of the site, questioned the completeness of the research.

Echo Bay's Bergstrom takes opposition to the A-J in stride. "We don't feel there's anything that hasn't been scrutinized or addressed, and there's nothing there that should hold up the viability of the project," he says. A second firm will conduct the final noise assessment for the municipality.

Like Richins of Coeur Alaska, Bergstrom says he expects legal challenges during the permit process, and the company continues to adjust its operation schedule accordingly.

Greens Creek Crunch. For the Greens Creek Mine, on Admiralty Island west of Juneau, the key to surviving stagnant metals prices, particularly those for silver, is looking for cost savings in every aspect of operations. According to the company's general manager, Cliff Davis, Greens Creek has spent the last year modifying its ore-separation process to increase the quality of the ore concentrate before it is barged to smelters all over the world.

"It's a little early to say how successful it's been, but we've got high hopes it's going to make a big difference in our revenues," Davis says.

The mine, located within the Admiralty Island Wilderness Monument, employs 260 people, with an annual payroll of $16 million.

Greens Creek produces three different concentrates -- lead, zinc and a combination of the two. Each concentrate contains different amounts of silver and gold. Current production is about 450,000 tons of ore yearly.

Davis says the company's owners are analyzing the economics of increasing production. Recent exploratory work has revealed that the ore body, originally estimated at 3 million tons, is at least 13 million to 14 million tons.

Davis says Greens Creek's owners should have a decision whether to step up production by the end of the year. The mine is owned by a partnership consisting of the Kennecott Corp. of Salt Lake City, Utah; Hecla Mining Co. of Coeur d'Alene, Idaho; CSX Energy Inc. of Virginia; and Exalas Resources of Toronto, Ontario.

The expansion feasibility work is being done in light of current, "not very encouraging" silver prices, says Davis. "We don't anticipate silver prices will rise significantly in the near future. One of the attractions of expanding the operation is it gives you the opportunity of lowering your operating costs."

Both Davis and Kemper Securities' Fathi say several factors are holding silver prices down. A large surplus of the metal worldwide and the recent dumping of almost 20 million ounces of silver in Saudi Arabia has kept prices depressed.

"It shook up the market," says Fathi. Silver in mid-July was trading at between $3.90 and $4 an ounce. Fathi forecasts improved prices of $5 to $6 an ounce in the next year.

"Prices we receive now are considerably lower than they were 10 years ago, and that doesn't take into consideration the effects of inflation," says Davis. He displays a miner's perpetual optimism, though. "We've survived a period of depressed prices and we continue to have confidence in the operation," he adds.

Panhandle Prospecting. Elsewhere in the region, optimism is evinced by continued exploration around Juneau and on Prince of Wales Island in southern Southeast Alaska.

Al Clough, a geologist with the state Department of Commerce and Economic Development in Juneau, says exploration continues, although smaller companies have been harder hit by the depressed metal prices. "A lot of the exploration dollars are generated on stock markets like the Vancouver exchange. When prices are low the investors certainly aren't speculating as much," he says. Clough adds that larger companies like Echo Bay and Cominco "are in it for the long haul. They're certainly well aware of price fluctuations."

Both the Kennecott Mining Co. and Cominco are continuing exploration throughout Southeast Alaska, says Clough. He also notes that Sealaska Corp., the Native regional corporation, has been diligently analyzing its properties on Prince of Wales Island.

Exploration continues at two formerly active mines in British Columbia, the Tulsequah Chief and the Polaris Taku. Both sites are up the Taku River south of Juneau. Clough says the Canadian companies doing exploration work are encouraged by what they are finding.

Another exploration firm, Geddes Resources Ltd., has stopped nearly all work at the Windy Craggy copper deposit in the northwestern corner of British Columbia, however, and the mine remains in limbo. The Toronto-based company is waiting for a land-use study to be issued by the provincial government. Clough says the company has a number of permitting issues to sort out and faces vocal opposition to the mine's development, because it is adjacent to the Tatsenshini River, a popular recreational site.

Although opposition is one of the reasons for the exploration slowdown, Clough feels that the ore deposit is so good that inevitably efforts will be renewed to develop it.

Call it miner's optimism.
COPYRIGHT 1992 Alaska Business Publishing Company, Inc.
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1992 Gale, Cengage Learning. All rights reserved.

Article Details
Printer friendly Cite/link Email Feedback
Title Annotation:Special Section: Slow Bore: A Tale of Obstacle Courses, Bright Prospects & High Hopes; Echo Bay Alaska Inc.; Coeur Alaska
Author:Pohl, Jeanine
Publication:Alaska Business Monthly
Article Type:Cover Story
Date:Sep 1, 1992
Previous Article:Small mines struggle to survive.
Next Article:Symptoms of recurring gold fever.

Related Articles
Southeast's economy rallies.
Alaska's mining industry forges ahead.
New life for old mines.
Open and ready for mining business.
Mining makes its mark - again.
Open and ready for business.
Southeast moves toward mining boom.
Little Exploration Done in Juneau Gold Belt.
Coeur strikes gold in Alaska; forty-ninth state exceeds mining corporation's expectations.

Terms of use | Copyright © 2017 Farlex, Inc. | Feedback | For webmasters