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Revival of Juneau-area gold mines still stalled.

It's similar to an eerie carnival ride as the train jostles and rolls along the tracks of the Sheep Creek tunnel, an "adit" in miners' jargon. Cool air circulates through the dark, wet corridors, creating a constant draft through the hundreds and hundreds of feet of underground tunnels.

Beams of light from the miner's lamp reveal rusting ore buckets, a hoist, a timber saw and an old ore cart - a few of the many dilapidated ruins of the Alaska-Juneau gold mine, deep inside the rock of Mount Roberts near downtown Juneau.

The old equipment and vacant underground chambers are reminders of the capital city's gold-mining heritage, when the A-J employed more than 1,000 men at its peak. The mine produced $80 million in gold from 1913 to 1944.

Today, Echo Bay Alaska Inc., a subsidiary of the Canadian firm Echo Bay Mines Ltd., wants to breathe life into the old A-J, as well as into the historic Kensington gold mine 45 miles north of Juneau. The company is awaiting the release of final environmental impact statements for both projects, as well as approval from the Juneau city-borough on large-mine permits.

The Juneau public is deeply divided over the possible resurgence of mining in the area: Environmentalists lament the loss of wildlife and habitat in the 400-acre Sheep Creek Valley, which Echo Bay would dam for use as a mine tailings disposal site; while others promote the positive impacts of economic diversification.

Echo Bay, based in Edmonton, Alberta, is an 85 percent owner of the A-J; the other 15 percent non-operating interest belongs to Watts, Griffis and McOuat Ltd. of Toronto, Ontario.

By contrast, the Kensington, which operated sporadically from 1887 to 1938, has proceeded more quietly than the A-J in its environmental review process. Echo Bay is a 50 percent operating partner of the Kensington Venture, while Coeur Alaska Inc., a subsidiary of Coeur d'Alene Mines Corp. of Idaho, holds the other 50 percent interest.

Although the A-J has received more public attention than the Kensington, the Juneau Planning Commission, charged with approving or denying the mine permits for the two projects, could actually decide the fate of the Kensington's permit before the A-J's, says Murray Walsh, director of the city-borough Community Development Department.

"We're going to have to produce a fairly monstrous report of our own on the A-J after the final environmental impact statement comes out," Walsh says. "The Kensington could just zoom right through by comparison."

With the A-J's final enviornmental impact statement due out by November, municipal staff in Walsh's department will need at least two months to analyze the information and make final recommendations to the planning commission, Walsh says. That means the nine-member commission could make its final decision on the A-J permit in January or February.

If federal officials release the Kensington's final environmental impact statement this fall, the planning commission could take up the question of granting the large-mine permit for the project before December, Walsh says.

Alaska-Juneau Mine. The proposed project is humongous: 1,000 ounces of gold extracted from 22,500 tons of ore every day. "The is a phenomenally wide ore body," explains David Stone, public relations manager for Echo Bay in Juneau. "In certain places it's as wide as 800 feet."

The low-grade ore would have to be blasted free. A network of conveyors, crushers and chemicals would remove the gold, breaking it free from the rock that binds it.

"The only way to mine it is to take it all," says Anthony Williams, chief of underground operations at the A-J. "It's very rare to see any of the gold with the naked eye. We're talking about a needle in a haystack."

Over the mine's expected life of 13 years, more than 100 million tons of ore tailings, or waste rock, would be dumped behind a 345-foot high concrete dam built at the opening of Sheep Creek Valley. About 10 percent of those tailings will have been treated with cyanide in the gold-recovery process, company officials say.

Few of the A-J's old tunnels will see action again under Echo Bay's plan. A new main tunnel would be drilled from the proposed 30-acre surface facility, four miles south of downtown Juneau. The tunnel would be used as a passageway for hauling bus loads of workers in and out of the ore body zone, as well as a route for equipment and supplies.

Ore retrieved would be sent through vertical chutes to primary crushers, huge tumbling drums filled with cannonball-size steel balls. The crushers would grind the ore into 6-inch diameter rocks, which then woudl be sent to the mine's underground mill. Gold-bearing rock would go through further crushing processing, until fine enough to be pumped through a pipeline to the mine's surface facility.

Next, the ore would undergo a variety of chemical treatment processes to recover the gold, including a sodium cyanide process that dissolves the gold as water dissolves a sugar cube. Tailings from that process would be pumped through a cyanide destruction tank containing neutralizing chemicals, before heading to the Sheep Creek Valley reservoir.

The gold recovered would be heated to more than 1,000 degrees Fahrenheit and melted. The liquid would be poured to form gold bars, the mine's final product.

There is no doubt that Juneau would see changes if the A-J reopens. According to federal and municipal reports, Juneau's mine-related population could total 1,500 to 1,700 people by 1994, when the A-J is scheduled to start production. The mine is expected to employ 130 to 315 people during a two-year construction phase and 450 people once it goes into production. Annual payroll for the project is estimated at about $21 million.

The Juneau municipality expects to earn about $12 million over the mine life from higher property and sales tax revenues and other payments. Based on current gold prices and gold reserve estimates, the city-borough's royalty share as part landowner of the A-J property could exceed $34 million.

Alaska Electric Light and Power Co., which provides electricity to Juneau, is the other landowner. The city-borough and AEL&P would split the royalties, with two-thirds going to the municipality and one-third to the utility.

Alliance for Juneau's Future is a 500-member group that supports economic diversification in Juneau and strongly supports the A-J project. The extra infusion of cash into the economy -- from the A-J employees' payroll, property and sales taxes and the municipality's royalty share -- will be good for the financial health of Juneau, says Elizabeth Miller, executive director of the non-profit organization.

"It will just increase the number of people in the restaurants and people using other businesses -- printing, clothes, more newspapers -- the whole realm of business and economics in Juneau," she says. Furthermore, impacts to wildlife and the environment can be minimized through regulations and permit requirements, Miller notes.

But others say the mine is too heavy a price to pay for the loss of Sheep Creek Valley, the increased population and the resulting increased stress on social services. "We felt safe in opposing the project more than a year ago because we took a look at its dimensions and its proximity to Juneau," explains John Howe, executive director of Alaskans for Juneau, a non-profit, 500-member group opposed to the A-J's reopening. "We decided an urban mine on this scale essentially right next to where a majority of Juneau people work and live was unworkable."

There is no way to mitigate losing the valley, a popular recreation area for hiking, Howe insists. Questions about the mine's effect on Juneau's water supply persist, he notes. Howe also says a proposed "mixing zone" in Gastineau Channel, where water from the tailings impoundment would be discharged, concerns the organization's members.

A decision on the A-J project is still months away. The U.S. Bureau of Land Management announced in late May that the final environmental impact statement for the mine would not be completed until December, at the earliest, due to additional questions of both Echo Bay and state resource agencies. June was the original target date for the final EIS.

In addition, BLM says it is unclear who is responsible for Echo Bay's proposed tailings pond: the federal Environmental Protection Agency or the U.S. Army Corps of Engineers.

Since February, the planning commission has met at noon each Thursday to review various aspects of the A-J project, with presentations by local organizations both opposed and for the mine's reopening. And each month since March, the city-borough has sponsored evening town meetings on the A-J.

Howe says the meetings have helped tremendously. "The more information people have, the better the decision will be," he says.

Miller agrees. "I think the meetings have given people an opportunity to learn new things about the issues and inspired them to search further themselves," she says.

Echo Bay already has spent about $33 million on developing the A-J proposal. Startup costs are expected to be $274 million, says Greg Sparks, vice president of Echo Bay Alaska.

Kensington Mine. The Kensington is near Berners Bay on Lynn Canal. Although the proposed mine has not received the same amount of public attention as has the A-J, there are concerns of the mine's potential impact on Lynn Canal Fisheries.

The draft environmental impact statement for the mine was released in June, with the final document expected this fall. The U.S. Forest Service is overseeing the environmental review for that project.

Smaller than the A-J, the Kensington project is expected to extract only 4,000 tons of rock per day. The underground mining methods and procedures proposed for gold recovery are similar to those planned for the A-J, although the Kensington's tailings reservoir would be created by building a dam made from earth and rock, rather than concrete. The dam would necessitate diverting the flow from Sherman and Ophir creeks temporarily during the life of the operation.

Besides the size Difference, the grades of ore vary greatly between the Kensington and the A-J. The Kensington's ore is .15 ounces per ton of ore -- three times as rich as the A-J's. The higher grade means the Kensington will yield more than half as much gold as the A-J, in less time and with less than a fourth the amount of ore.

The A-J during its lifetime is expected to produce 4.7 million ounces of gold; by comparison, the Kensington calls for 2.4 million ounces of gold during its shorter life span.

The smaller scale of the Kensington naturally would employ less people, 340 workers. If both mines come on line simultaneously, Juneau's population could escalate by 3,000 in the first three years of the two projects, unless other factors, such as reduced state government, offset the increase.

According to the Kensington's draft EIS, if both projects start at the same time, Juneau would need an additional 990 housing units by 1994 School enrollment would climb by 620 students before leveling off in 1996.

There have been several sessions between representatives of the Kensington project and the municipality in reviewing the proposal for its largemine permit, but a series of extensive meetings similar to the A-J's schedule are not likely, notes the city-borough's Walsh.

"There hasn't been any kind of plan established for doing anything special for the Kensington," Walsh says. "No one has asked for anything special, no one is proposing that we have a series of lunch meetings, town meetings or any other kind of meetings. But I suspect that could change."

According to the venture's plan, the workers at the Kensington would live in Juneau and rotate to the mine site on weekly shifts of about 250 workers. But the project also is important to Haines, because that town is only 35 miles north of the Kensington property and some miners could opt to live in that community instead.

Helicopters would transport workers from Juneau to the mine, and a barge would arrive once a month with supplied and equipment.

The Kensington mill would crush and grind recovered ore into fine particles. About 3 to 7 percent of the ore would go through a cyanide process used in gold recovery that is similar to that proposed for the A-J operation. Also similar to the A-J, other chemical processes would recover the gold and destroy the cyanide.

The Kensington would require a 240-foot dam across a portion of Sherman Creek as a tailings impoundment. The project is expected to generate about 400 tons of waste rock daily, which initially would be used in dam construction. The remainder would be stored in stockpiles, some of which could be used for backfill at the mine.

Although Alaskans for Juneau has not taken a stand on the Kensington project, Howe says the group is keeping a close eye on it. "We're interested in looking at what kind of precedents are being set there, as they could be related to the A-J," he says.

One group that is closely watching the Kensington permitting process, however, is the Southeast Alaska Conservation Council based in Juneau. The council has 1,000 individual members and 13 organization members throughout Southeast. Its members feel the Draft EIS for the project lacks definitive wildlife and marine information and does not adequately address potential stability problems with the proposed earth and rock tailings dam, according to Chris Finch, SEACC assistant director.

Also high on SEACC's list of concerns is the Kensington's proposed mixing zone in Lynn Canal, which would be used to dilute the discharge from the tailings pond. "There is responsible mining and there is irresponsible mining, and I think that dumping elevated levels of cyanide and heavy metals into a major fisheries area is irresponsible," Finch says. He adds that a mixing zone would be better labeled a "legalized pollution zone."

The cumulative socioeconomic impacts to Juneau from the A-J and Kensington together also could be negative, Finch notes, especially the shortage of housing which would get even worse in a city with a vacancy factor below 1 percent.

A myriad of issues and concerns were raised at two Forest Service sponsored public hearings on the Kensington in July -- one is Juneau and one in Haines. The federal Environmental Protection Agency also held hearings in both communities this summer on a necessary water-discharge permit for the project.

So far, the partners of the Kensington project have spent $32 million each on the project, in addition to original purchase costs, according to Echo Bay's Sparks. Startup costs are expected to be $90 million each, he says.

Financial Strength. Falling precious metal prices in recent years and several bad investments plague the financial past of Echo Bay Mines Ltd. That history makes some people question whether the parent company has the financial strength needed to reopen the two southeast mines.

Earlier this year Echo Bay reported a loss of $58 million on revenues of $339 million, following investment write-downs or write-offs in 1990 that totaled $82 million. That compares with 1989 net earnings of $16 million on revenues of $297 million. Earnings in 1988 were much better, at $54 million on revenues of $268 million.

"I don't think we should win any awards for performance in 1990," says Robert Calman, the company's board chairman. "But the essence for 1990 is we took two big lumps ... and we put those behind us."

One "lump" was Echo Bay's $42 million write-off of a minority interest in three eastern Canadian gold mining companies called the Muscocho Group. In 1989, Echo Bay wrote off $20 million of its investment in the group.

The other lump was a $40 million write-down of the Alta Bay Joint Venture, in which Echo Bay has a 40 percent non-operating interest in several gold and silver mines in Nevada and Colorado. In both the Muscocho and Alta Bay cases, the mines were producing precious metals at a loss, and Calman says getting rid of them will put Echo Bay in a stronger position.

But it could take awhile for that to happen, according to one Wall Street analyst. "The company is weaker than it was two years ago," says Warren Myers, vice president of capital markets for Merrill Lynch & Co. in New York. Myers tracks Echo Bay and other mining companies for Merrill Lynch.

The losses don't place Echo Bay in imminent financial danger, although it's important the firm develop one of its Alaska properties to create additional production, Myers says. "They have other mines that are near the end of production or are already mined out," he notes.

Meanwhile, Calman says the company won't have a firm financing strategy for reopening the mines until permits are in hand. It's likely Echo Bay will borrow cash or gold, which it would then sell for cash. "We're not a giant company that finances things by just writing a check," Calman explains.

Echo Bay also is at the mercy of the gold market, the dynamics of which have changed considerably during the past 10 years, Myers comments. "We're probably mining more gold now and producing more gold now than in the history of forever," although gold is losing its "safe haven" character as a worthwhile investment, he says.

The result has been a decline in the price gold is fetching on the market. In 1988, gold hovered around $410 an ounce, down from an average of $440 an ounce the year before. It ranged from $310 to $370 in 1982 through 1986, down from a high of $460 in 1981 and more than $600 in 1980. It has been trading in the $360 range for most of 1991.

About 60 to 70 percent of the demand for gold is from jewelry manufacturers. For the first time in years, jewelry demand in 1990 exceeded supply, and Myers figures without such jewelry demand, the price of gold would be even lower than it is today.

But Echo Bay's Calman has a more optimistic outlook on the gold market and its relationship with his company. He points out that gold production in South Africa -- the largest gold producer in the world -- is slowly declining, while new markets are emerging in Pacific Rim countries.

There will always be a market -- and a price -- for the precious metal, he says. "Gold is about the oldest kind of money there is."
COPYRIGHT 1991 Alaska Business Publishing Company, Inc.
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Copyright 1991 Gale, Cengage Learning. All rights reserved.

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Title Annotation:Special Section: Mining's Rough Ride; Alaska-Juneau gold mine
Author:Ripley, Kate
Publication:Alaska Business Monthly
Date:Sep 1, 1991
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