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Water ballot issue hinders Alaska's mining industry in 2008.

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Alaska's mining industry posted a record value in 2007 of nearly $4 billion, thanks to a hectic pace of exploration, construction of new mines and increasing market prices for metals produced in the state.

Growing nearly 300 percent in a four-year period, Alaska's mining industry has attracted global interest and is perched on the edge of becoming a major player within the world's mining jurisdictions with anticipated exploration and development of large-scale deposits and expansion of existing mine operations.

But the rate of mining-related activity has suddenly and unexpectedly slowed this year, attributed in part to two voter initiatives that may be included on August's primary election ballot.

A coalition of mining opponents gathered signatures last year for two voter initiatives that, if passed, would dramatically change regulations regarding water and waste handling at large mine operations in Alaska. The two initiatives are currently making their way through Alaska's judicial system in an effort to determine whether a public vote is legal, as the state's constitution reserves the duty of allocating state resources to the Alaska Legislature.

In May, ballot sponsors sought to withdraw one of the two initiatives from the August election, saying they would focus efforts on promoting the remaining initiative.

But the impact of the anti-mining ballot initiatives, combined with the public debate between mining industry advocates and critics permeating throughout Alaska's media, has dampened enthusiasm and industry investment, even before Alaska voters have a chance to decide the issue.

MINING FREE FALL

"There is no question in my mind that the unforecast, but very real slowdown in the Alaska mining industry being felt so far in 2008 versus 2007, is in part due to the uncertainty placed over Alaska by the water ballots question," said Curt Freeman, a Fairbanks-based consulting geologist. "And this slowdown is taking place despite the fact that demand for metals continues to rise and commodity prices remain at historic or generational highs."

At Avalon Development, Freeman has fielded questions regarding the water ballot initiatives from a number of mining companies, investment firms and individuals.

"The fact that they have taken the time to call or e-mail inquiries indicates to me that they are perceiving a possible negative change in Alaska's future," he said. "Regardless of whether or not the water ballots pass, smart money and smart companies put their resources in jurisdictions that minimize their risk."

DAMAGE DONE

"So in one respect, damage has already been done," he said.

Mining opponents who have pushed the water ballot proposals say their efforts are targeted at only the Pebble copper-gold-molybdenum deposit, located near Iliamna Lake in Southwestern Alaska.

Yet the initiatives include stringent proposals regarding use and disposal of water and waste, key components of any mine operation. Waste includes handling overburden, tailings and low-grade or non-mineralized rock for all large-scale operations.

Both of the two initiatives would apply to mine operations in excess of 640 acres, which includes all components of a mine and its processing facilities, as well as support roads, transmission lines, pipelines and separation facilities.

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"There's not very many open-pit mining operations that would be able to fit under that," said Rick Van Nieuwenhuyse, president and CEO of NovaGold Resources, which recently completed construction of its Rock Creek gold mine near Nome.

"Rock Creek is average size, average grade, very simple processing. In order to do things right, you can't have facilities on top of each other. It's such an arbitrary disturbance criteria, that it doesn't make any sort of practical sense other than they would know that very few operations could operate under that threshold."

FIRST 'VICTIM'

Operational plans for Rock Creek includes adding ore from Big Hurrah, a satellite gold deposit located some 50 miles away, which is currently in the permitting stage and could possibly be one of the first victims of the proposed water ballot initiatives.

Eliminating mining at Big Hurrah "... would shorten the life of Rock Creek, not quite cutting it in half," Van Nieuwenhuyse said. "It would take a couple years of mine life away."

At peak production of about 100,000 ounces of gold annually, Rock Creek will employ about 165 people.

"In a town of 2,500 people, that's a lot of people, and they are good-paying jobs," he said.

Another potential victim of the ballot initiative is NovaGold's Donlin Creek project, located in Southwest Alaska, on land owned by Calista, the Native regional corporation for Southwest Alaska. Total spending on the 32 million ounce gold resource, beginning with Calista's initial geochemical work in the late 1980s, is substantial.

"We've spent, collectively, by the end of this year, a quarter of a billion dollars, by all the parties involved," said Van Nieuwenhuyse. "We're not far off being able to deliver a feasibility study and to initiate the permitting process next year."

DRYING UP?

Should development of Donlin Creek, which includes Barrick Gold as a 50 percent partner, be blocked due to the water ballot initiatives, a significant economic opportunity for the region would be mired in lawsuits or would simply dry up and disappear.

"You're talking about thousands of jobs during construction, and 500 to 600 people during operation. Right now, 90 percent of the people working at Donlin are Yupik, from local communities," Van Nieuwenhuyse said. "Calista and TKC (the village corporation for the region) have developed businesses to support exploration and mining operations, which we envision to only grow as we go forward. All that opportunity would be lost."

If passed, the water ballot initiatives and resulting legislation that would enforce the measures would create substantial legal problems for the state of Alaska, as the regulatory enforcing agency. Van Nieuwenhuyse believes the measure would likely shut down Alaska's mining industry.

SHUTTERED DOORS?

"It's very difficult to make hundreds of millions, let alone billions of dollars

of investment in a state that would pass such broadly and poorly defined guidelines in that initiative," he said. "I would suspect a huge number of takings lawsuits to come out of this."

Another measure of the mining industry's recent perception of Alaska can be found in the Fraser Institute's annual survey of worldwide mining and exploration companies and resulting ranking of mining jurisdictions throughout the world.

When considering the region's mining policy potential, Alaska ranked 35th out of 68 in the 2007 survey.

When evaluating mining jurisdictions solely on mineral potential, Alaska ranked third.

"I can say that the Fraser Institute rating for Alaska has dropped significantly since the previous rating," said Rich Hughes, development specialist in the state's Office of Economic Development/Minerals.

NO NEW DEVELOPMENTS

"Companies are tentative and will not significantly invest in new ventures in the state until the issue is settled in favor of the mining industry."

Hughes and other state employees working in regulatory agencies were prohibited from speaking publicly about the specifics of the two ballot initiatives this spring, an effort to keep those public workers from influencing the outcome of a potential election. But industry regulators did say that water and waste handling at mine operations in Alaska, which are targeted by the two ballot initiatives, are currently monitored and regulated.

"In general, any mine discharges have to meet clean water standards. They allow certain amount of toxic pollutants described, in amounts proven not to be harmful to humans or fish," said Ed Fogels, director of the state's Office of Project Management and Permitting in the Department of Natural Resources. "Those standards are federally blessed, and so the system is already in place to regulate the release of those toxic agents. Natural waters contain many of those agents and many are required for life to exist in those areas."

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IMPOSSIBLE STANDARDS

Not only do the proposed water ballot initiatives duplicate existing law, but also they would set regulatory standards impossible to attain. Those strict water standards could not be met even by advanced municipal water-treatment plants, according to a 16-page information booklet produced by NANA Regional Corp., a partner in Alaska's largest mine operation, the Red Dog zinc and lead mine in Northwest Alaska.

"The proposed initiatives would effectively prohibit discharge of water, even when treated to meet the water quality standards and thereby end mining in Alaska. All discharge would either be prohibited or be required to not contain any contaminants at any concentration," NANA said, in the document. "Even the most advanced technology cannot remove all trace minerals. These are impossible demands on the industry and constitute a purposeful and direct effort to shut down all mines in Alaska.

"Further, some experts believe the initiatives are so broad they will apply to a broad range of Alaska industries, including, but not limited to, oil, gas and gravel extraction," the regional corporation added.

The two ballot initiatives include language that would exempt existing mine operations from the proposed new law, as long as all federal, state and local permits were obtained prior to the effective date.

BAD NEWS FOR RED DOG

But mining at Red Dog could potentially be stopped by the ballot proposals, as the operation is preparing to submit permits for opening a new mine site. Ore from the existing open-pit mine is nearly depleted and operational managers need to complete the permitting process for mining the nearby Aqqaluk deposit before 2010 to maintain continuity of Red Dog.

The world's largest single producer of zinc, Red Dog's gross revenues from zinc and lead production was more than $1.4 billion in 2007, with an operating profit of $819 million. The mine paid 230 million in royalties to NANA and to the State.

Red Dog employs some 450 fulltime, year-round workers and nearly 100 seasonal workers; more than 60 percent are NANA shareholders.

The mine currently has a mine life extending to 2031, but could potentially operate longer, as additional mineralization has been discovered nearby. "The mine enjoys broad support locally. It delivers tremendous benefits locally as well as statewide. Jobs that shareholders have at the mine pay $20 million in annual wages," said Helvi Sandvik, president of NANA Development Corp, in an e-mail inquiry last November. "The mine's payments in lieu of taxes to the Northwest Arctic Borough provides a major if not the major source of funds used to support the education infrastructure in the region."

NANA shares roughly 62 percent of its revenue received from Red Dog with other Native corporations in Alaska, part of the natural resource sharing provisions required by the Alaska Native Claims Settlement Act. That revenue stream would ultimately choke off, if the water ballot initiatives were passed and mining shut down in Alaska.

"Our concern is that an initiative like this ... fails to recognize that NANA (or any other Native corporation), more than anyone else, is concerned about environmental issues in our region - we have an obligation to manage our lands in the best interest of our shareholders who will forever live off of the land," Sandvik said. "In the Alaska Native Claims Settlement Act, we were given the right to make development decisions for our lands. This initiative in essence would preclude any project anywhere from going forward if water discharge would be required - regardless of whether that discharge could be done in a scientifically proven, safe method. This is inappropriate.

"We view this as substantially eliminating our right to consider development alternatives on our lands," she added.

NATURAL RESOURCES' SLOW DEATH

NANA and others involved in the mining industry said that the proposed new rules could later expand to other industries in the future, should the ballot initiatives be passed.

"Given Alaska's amazing mineral potential, I would not expect the mining industry to sit idly by and watch the industry die a slow death should the water initiatives pass. I would also expect other Alaska resource industries to support the mining industry's efforts because they are wise enough to read the writing on the wall - if the mining industry is banned today, their industry will be targeted tomorrow," said Freeman. "I liken the idea of banning of new mines and eliminating the option to expand or modify existing mines in Alaska, which is what the water ballots will do, as the equivalent of previous generations banning oil and gas production in Alaska after Prudhoe Bay was discovered. Thankfully, the Alaskans of that day had the foresight to weigh risk against reward and come up with what has proven to be an overwhelmingly positive response to petroleum development."

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Water Ballot Article Highlights

* Last year, the mining industry posted a record value of $4 billion in exploration and construction, a 300 percent increase in a four-year period.

* This year, the rate of mining-related activity has suddenly and unexpectedly slowed, despite high metals prices, in part due to two voter initiatives that were to be included on August's primary election ballot.

* In May, ballot sponsors withdrew one of the two initiatives from the August election, saying they would focus efforts on promoting the remaining initiative.

* Damage, due to the increased interest in the ballot initiatives, has already been done and may impact all mines, even though the initial target was Pebble.

* Both of the two initiatives apply to mine operations in excess of 640 acres, which includes all components of a mine and its processing facilities, as well as support roads, transmission lines, pipelines and separation facilities. Few open-pit mining operations would qualify for the exemption, if passed.

* Companies interested in investing in Alaska are watching closely and will not make significant investments in new ventures until the issue is settled.

Editor's Note: At press time, two water-ballot mining initiatives were to appear on the August primary election ballot. Since that time, sponsors have dropped one to better focus on the remaining initiative, designed to stop the mining industry from progressing as an Alaska industry.
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Title Annotation:MINING
Comment:Water ballot issue hinders Alaska's mining industry in 2008.(MINING)
Author:Liles, Patricia
Publication:Alaska Business Monthly
Geographic Code:1U9AK
Date:Jul 1, 2008
Words:2296
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