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The prospect of legislative change haunts the mining industry.

New Mineral developments and discoveries in Alaska are so geologically and economically exciting that they almost overshadow the political attack on federal mining laws that some say threaten the very structure of the mining industry.

Ask geologists and engineers what they think are the top mining stories of the last year and they will sing the praises of the Red dog zinc mine near Kotzebue and the expanding, multimineral glories of Green Creek near Juneau. They'll marvel at the emerging good news from the Fort Knox gold deposit near Fairbanks and hint at the hidden wealth of a place called Pebble Beach.

Ask the same question of Steve Borell, executive director of the Alaska Miner's Association, and he is bound to launch into a slightly shorter version of his copious comments to Congress on proposals to overhaul federal mining procedures. "Under changes being proposed, the immediate effect would be that many people would cease to look for minerals on federal lands," Borell charges.

He contends that the attack on mining laws which have been the foundation of the nation's mineral industry since 1872 is only the latest offensive by environmentalists bent on driving miners off federal land for good. According to Borell, other recent indignities suffered by the industry include the loss of roughly 300,000 acres of the Tongass National Forest to "big W," his term for wilderness status, under federal legislation passed last year.

At the crux of the nationally debated controversy surrounding the Mining Law of 1872 are several proposals to initiate a system of fees and rayalties to be paid by individuals or companies prospecting federal land. The two main congressional measures, S. 433 and H.R. 918, vary in their approach to fee assessment, but both represent a dramatic departure from existing procedures.

While geologists, engineers, contractors, prospectors and mining company executives keep a worried eye on Washington, D.C., many are preoccupied, and cheerfully so, by a busy field season in Alaska's highly mineralized hinterland. News of more immediate prospects and progress in opening new mines for production makes the gloom of political clouds a little less onerous.

According to those who track the vital statistics of Alaska's mining industry, major indicators are even better than reported last year. Expenditures for mineral exploration increased by more than $15 million from 1989, to $63.25 million last year.

Most exploration efforts focused on hard-rock (as opposed to placer) gold deposits, and some projects evaluations are in advanced stages. About 50 percent of the explorations is credited to Southeast Alaska, where companies have been probing the depths of old mines with an eye to new technologies.

Placer gold mining has seen little recent expansion in Alaska, and its future is uncertain, especially for small operators. But the state still boasts the largest placer industry in the country.

Dick Swainbank, mining and minerals development specialist for the Alaska Department of Commerce and Economic Development, says metal prices aren't hurting the state's mineral picture, either. Last year, for the first time since 1925, the value of base metals produced in Alaska exceeded precious metal values.

"That's going to be a pattern for the foreseeable future. What it indicates is the impact that one operation can have on the whole industry," says Swainbank, referring to the Red Dog zinc/lead mine. "Red Dog and Greens Creek have attracted worldwide attention to the fact that you can mine cost-effectively in Alaska, that we have some big operating mines."

In 1990, after an 18-year span of exploration and development, the joint effort of NANA Corp. and Cominco became the largest producer of zinc in the United States. At full capacity, the Red Dog mine near Kotzebue is expected to produce 560,000 tons per year of zinc concentrate and 120,000 tons per year of lead concentrate.

Roy McMichael, an independent consulting geologist who worked on the Red Dog project in its early stages, echoes the sentiments of many when he describes the mine's prospects. "It's going to be a major producer. I can't see an end to that mine in the foreseeable future," says McMichael.

Zinc is used in numerous products and processes, from galvanizing to medical applications. McMichael notes that only is the world a net consumer of zinc, which assures substantial demand, but Red Dog's relatively low operating costs greatly improve the notoriously narrow profit margins usually encountered by mine operators.

Swainbank and McMichael also cite the newest mine in Southeast, which holds deposits of gold, silver, lead and zinc, for its contributions to the state's mineral industry. "The nice thing about Greens Creek is it's not solely dependent on one commodity," says Swainbank.

Opening of the Red Dog and Greens Creek mines caused a drop in development expenditures but a dramatic boost in Alaska's mineral production values for the year. Production, nearly double that of 1989, was pegged at about $533 million for 1990.

In addition to the drop in mine development activities, the shift from development (the labor and capital intensive stage of preparing a mine site for actual operations) to production at the new mines also resulted in a drop in statewide figures for mining employmnent, to 3,585.

Drilling footage data, a reasonably reliable precursor of new development and production activities, increased last year, from 678,000 feet in 1989 to 960,000 feet. "That's a very good sign," Swainbank says.

Bright Prospects. As Red Dog and Greens Creek shipped their ores to smelters in Canada, Europe and Asia, other bright prospects appeared on the mineral horizon last year. In Fairbanks, where Swainbank monitors the state's geologic pulse, a huge deposit known as Fort Knox is promising to yield 3 million ounces of gold from a total resource exceeding 7 million ounces of gold in less than a square mile. Compare that, Swainbank suggests, with the 8 million ounces produced during the entire life of the 800-square-mile Fairbanks mining district to date.

Two other gold deposits often are mentioned in industry circles these days as hot prospects that may launch a new generation of producing mines: Illinois Creek, about 40 miles south/southwest of the Yukon River community of Galena, and Nixon Fork, near Medfra.

If its owners decide to proceed, Illinois Creek will be only the second heap-leaching operation in Alaska (the other is near Fairbanks). The process uses a cyanide solution to separate gold from stockpiled ore.

North Pacific Mining, a subsidiary of Cook Inlet Region Inc., is completing a variety of assessment chores on the claim. In 1989, reserves were estimated to be 1.7 million tons, averaging 0.071 ounces of gold per ton and 2.05 ounces of silver per ton.

"If the markets are good and the results are good, sometime next year we'll decide whether to proceed immediately or hold off a bit," says Jerry Booth, president of North Pacific Mining.

One of the big challenges facing the company is getting the heap-leaching system to work year round, which would be a first in Alaska. Booth dismisses concerns about the potential for environmental degradation posed by the technique.

"As we move through this, we'll probably get more attention to it, but it's very environmentally safe, it's a closed system. When we get down to the facts of it, there shouldn't be that much concern. It's a proven technique," Booth asserts. If Illinois Creek gets the go-ahead, Booth predicts a seasonal crew of 20 to 50 workers and year-round jobs for 8 to 10 employees.

Chris Puchner, vice president of Central Alaska Gold, reports that commercial viability of an underground gold mine at Nixon Fork is still being evaluated. "It's fair to say that we're contemplating development of a mine at a 250-ton-per-day level, assuming the economic viability of it," Puchner says.

Although pretty small compared to Greens Creek's 1,200 tons per day, "if and when it happens it would be a year-round operation," says Puchner. Estimates published by the state of Alaska indicate Nixon Fork might yield 320,000 ounces of gold.

Southcentral Find. One of the most important industry developments in the last year was the January announcement by Cominco Alaska Inc. that its geologists had discovered an important deposit of gold and copper on state lands near Lake Iliamna. Results of drilling tests to date indicate ore reserves of 200 million tons, averaging, .4 percent copper and .015 ounces of gold per ton.

Although apparently not as rich as the Windy Craggy copper discovery in Canada, Pebble Beach is attractive because it's so close to Lake Iliamna, and, therefore, offers a relatively easy route to market. According to Swainbank, the occurrence of copper and gold together is an added bonus; typically, when the price of one is down, the other is up.

Preliminary studies suggest a producing mine at Pebble Beach could employ up to 250 people. According to Madelyn Millholland, geologist and permitting coordinator for Cominco, the company is maintaining a posture of cautious optimism as it analyzes another year's worth of more intensive drilling data.

Millholland says particular care has been taken to avoid surface disturbance in the area because a decision has not yet been made to develop the property. A crew of 16 to 18 people has been ferried between its quarters in Iliamna and the drilling site.

"We were encouraged. All of our holes last year were only 300 to 400 feet deep and most bottomed in ore, so we feel the property has substantial exploration potential," Millholland says. "Based on the tonnages, it would probably be a large mine, but we're just in the talking stages."

Industry Hobbles. According to industry experts, the Pebble Beach discovery represents precisely the type of scenario that would be precluded on federal lands if proposed changes to the mineral entry laws are enacted: A discovery results from land previously explored and passed by being reexamined in light of new geological understanding or with advanced exploration equipment.

"Initially, we went to that area because we were looking into gold-bearing quartz veins," recalls Millholland. Instead, Cominco found what is known as a prophyry (pronounced pour-free) style copper/gold deposit, a geologic occurrence not widely sought or understood during earlier assessments in the area. A porphyry is a widely dispersed, low-grade mineralization deposit.

What makes people like the Alaska Miners Association's Borrell mad is that unlike Nevada, Wyoming, Colorado and other Western states, Alaska hasn't had a decent once-over from the industry. While some large companies such as Cominco might keep crews in the field pursuing opportunities on federal lands despite mining law changes, smaller firms likely would be discouraged from further exploration because of the higher costs.

Swainbank estimates that 60 to 70 percent of major mineral discoveries are attributable to small exploration outfits. "I wouldn't say the're essential, but the individual prospector has been instrumental in bringing the big mines on line in many cases," says Swainbank. He also contends that many of the big companies are run by people with a poor understanding of exploration techniques and challenges, leading to insufficient budgets, poor planning and wasted effort.

In the January 1991 issue of Minerals Today, T.S. Ary, chief of the federal Bureau of Mines, described the philosophy of the current system of mineray entry: "The mining law system is basically a process whereby the public is invited to explore federal lands in the Western United States for valuable minerals and, upon discovery of a valuable mineral deposit, to obtain the right and security of tenure necessary to develop the deposit and obtain and mine the deposit. It is primarily a system for the acquisition of property rights. The intent was to reward the risk-taker, the prospector, with a deed to the land that contains his discovery."

Part of the reward contemplated by the system of entry, called "self-initiation," is the absence of fees levied by the federal government. This has been considered an especially critical factor in the early stages of mineral exploration and mine development before the hoped-for-production revenues begin to flow.

Borell says, "The new rental fees, undefined user fees, and very excessive diligent development requirements that escalate to unreasonable levels would be major disincentives to the industry. These costs would nearly eliminate the small miner or prospector from participating at all. It's the grass-roots stuff that will probably not continue."

Borell estimates that in the last year 10,000 mining claims have been dropped on state lands by prospectors unwilling to pay newly implemented rentals mandated by a court ruling.

Call for Change. The impetus for the ming law overhaul comes from several concerns, including hazards posed by abandoned mines and degradation of national park lands by mines both deserted and currently operating. The industry contends existing laws and regulation are ample to address such issues without attacking the basic premise of mineray entry itself.

Tom Hawkins, former deputy commissioner of natural resources in the Cowper administration, says two sentiments are primarily responsible for pressure to change the status quo. One he characterizes as mounting doubts about the wisdom of allowing mining companies to become so easily enriched from the development of public resources. The second is a tendency by some mining claim owners to forgo real mining in favor of the greater financial rewards of real estate speculation.

Hawkins agrees with miners that an overhaul of the federal mineral law system is unnecessary. "The little guy, the entry man, has a place in the system. The only way to get a market is to give somebody a property interest," Hawkins says. "I suspect the purpose of the changes is not to make the mining industry work better; it's to make it work less."

Borell says Alaska miners feel cornered by the apparent momentum behind the proposed mining law changes. "There's a defeated attitude, there's no question about it. They feel just overwhelmed."

Borell considers the proposed measures "so onerous" that legislators will not pass them this year. He's hopeful that a bill introduced in the U.S. Senate that would create a mining law review commissions will result in a more rational examination of whether changes are required and what revisions might be appropriate.

While the proposed new mineral entry system potentially would discourage exploration on nearly 50 million federal acres in Alaska - in addition to 165 million acres already off-limits due to restrictive status - some in the industry suggest the negative impact in Alaska could be forestalled by turning attention to lands in other ownership. "It could make state lands more attractive for exploration," says Cominco's Millholland.

Hawkins agrres. "I think there's quite a bit of momentum for challenging it. I expect the state ground will look more attractive when the changes come, but I see it being in the middle of the decade," he adds.

Some state lands considered to have high mineral potential still are under the cloud of the mental health lands trust issue, which seems to be lurching to a long-awaited legislative and judicial resolution. Created before statehood to generate revenues for mental health services, the trust later was dissolved by the state.

Under a court directive, state lawmakers this year approved a measure to reconstitute the million-acre lands trust. Presumably, mineral lands in the hands of a trust driven by a revenue-generating mandate would get a green light for development. But intricate negotiations still must be completed to fully assemble the trust portfolio.

"The amount of territory hobbled by this arrangement is not that much acreage. Roughly you still have an 80-million-acre ball field to look in," Hawkins says. "The question for the mining industry is, how is the entry going to be managed on acreage controlled by the mental health lands trust?"

In addition to pointing out mining opportunities worth pursuing on state lands, Hawkins notes that most of the regional Native corporations in the state have, or are eager to have, aggressive mineral exploration programs contracted for their lands. One example is the contract signed last fall by Sealaska Corp. with American Copper & Nickel Co. to explore 14,000 acres of the corporation's surface estate on Prince of Wales Island. Sealaska hopes to parly significant potential for gold, silver and copper into profit and a 20 percent shareholder/Native hire arrangement pledged by ACNC, a subsidiary of a multinational giant based in Toronto, Ontario.

According to reports published by the state, the search for hot prospects is also under way on lands held by Arctic Slope Regional Corp., NANA Corp., Bering Straits Native Corp., Doyon Ltd., Cook Inlet Region Inc., Calista Corp., and the Aleut Corp. Most other Native regional corporations own highly mineralized acreage, too.

"Everybody wants to find a Greens Creek or a Red Dog," Hawkins says.

For some, despite the prospects and good news generated by Alaska's mining industry in the last year, it has been impossible to ignore the signs of impending changes reflected in the pressure to revise federal mining laws. North Pacific Mining's Booth says. "I certainly hope that it doesn't go as we see it today. It will definitely move mining companies off federal lands to third world countries."

Independent geologist McMichael sounds a more drastic warning: "I'm very concerned about what the mining industry is going to look like in 10 years or if there's going to be a resource industry if changes are made to the mining law. To totally revamp the thing is going to do a lot of damage." McMichael attributes much of the sentiment for changing the law to misunderstanding. "They don't understand how it works, even the legislators, especially the legislators. They don't understand how you go about staking a claim, getting a patent, and the costs involved," he says. Exploration costs in Alaska are abnormally high, McMichael adds.

"Alaska is still a frontier. There are going to be major discoveries. There are new things being discovered all the time, but there has to be the encouragement to go look."
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Title Annotation:Special Section: Mining's Rough Ride; proposed overhaul of the Mining Law of 1872; includes related article
Author:Richardson, Jeffrey
Publication:Alaska Business Monthly
Date:Sep 1, 1991
Previous Article:Alaska's trade with Canada: overlooking the obvious.
Next Article:Low silver prices plague Greens Creek.

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