Alaska's mine production values may increase in 2010

State officials anticipate the value of production by Alaska's mining industry will increase this year, thanks to stable base metal prices and increasing precious metal prices.

Last year, Alaska's mines produced $2.41 billion worth of minerals, about the same level as 2008, according to industry statistics tallied by the state's Office of Commerce and the Division of Geological and Geophysical Surveys.

Development at existing mines and of new operations contributed an additional $275 million to Alaska's mineral industry, and exploration work added another $160 million, for a total industry value of $2.85 billion in 2009, according to David Szumigala, senior minerals geologist at the Alaska Division of Geological and Geophysical Surveys, and co-author of the Alaska Mineral Industry report.

That's well below 2008's mining industry total of $3.1 billion and 2007's all-time record of $4 billion, Szumigala noted during his presentation at the Arctic International Mining Symposium held in early March in Fairbanks.

"Production values slightly declined (in 2009) due to metal prices decreasing," he said. "Exploration and development values go up and down as major projects come on-line."

Rich Hughes, development specialist in the state's Office of Economic Development/Minerals and co-author of the Alaska Mineral Industry report, expects mine production values to increase in 2010, based on stable base metal prices and recent increases in gold and silver.

But that assessment contains one key variable: what will happen this fall at the Red Dog zinc and lead mine in Northwest Alaska. Red Dog is currently the largest single contributor to Alaska's mining industry, providing about 55 percent of the industry's total value in 2009.

Red Dog is running out of ore in its existing open-pit mine, which has supplied the hard rock operation for more than 20 years. Mine managers have been working for three years to secure regulatory permits to begin mining Aqqaluk, another mineralized zone located next to the existing pit.

State and federal regulators approved water discharge permits early in 2010, but those authorizations have been appealed by a small group of Kivalina and Point Hope residents, represented by environmental activist legal firms.

While the anticipated lengthy appeals process continues, Red Dog operators Teck Resources and its Alaska Native corporate partner, NANA Regional Corp., are considering a possible mine shutdown this fall.

A mine shutdown at Red Dog would not only dramatically impact the Northwest Alaska economy, but the state's mining industry.

"Production numbers will be up in 2010, although that will be contingent on what Red Dog does," Hughes said. "If Red Dog shuts down in October, that's going to affect the value of the industry significantly."

In 2009, the value of zinc produced in Alaska accounted for more than $1 billion in the state's mining industry statistics, equal to 44 percent of Alaska's mine production value. Lead mined in Alaska provided another $260 million in value, or 12 percent.

Greens Creek, a polymetallic underground mine in Southeast Alaska, produces some zinc and lead in its mix of metals, but Red Dog is by far the largest producer of those base metals in the state.

A loss of production from Red Dog this year would be partially offset by anticipated increased gold production from the Fort Knox and Pogo mines in the Interior.

Located about 20 miles northeast of Fairbanks, Fort Knox should produce about 30 percent more gold in 2010, according to the mine's annual report released in March.

Additional gold production from the mine's new heap leach accounts for nearly all of the anticipated gold production increase, according to the report. The heap leach is expected to produce nearly 71,000 ounces of gold in 2010, boosting the mine's total production to an expected 339,971 ounces, up from the 263,260 ounces produced in 2009.

Fort Knox managers continue to complete drilling in the existing mine pit, gathering information to evaluate a potential Phase 8 expansion, according to spokeswoman Lorna Shaw. About 32,000 feet of in-pit drilling will be completed this year. The mine plans to spend $5.3 million on exploration in Alaska this year, comparable to 2009.

Pogo, an underground hard rock mine located about 40 miles northeast of Delta Junction, overtook Fort Knox as the state's largest gold producer two years ago. Pogo produced 348,000 ounces of gold in 2008, and 390,000 ounces in 2009, according to the mine's general manager, Larry Davey.

"We've been ramping up production over the last couple of years," he said in mid-March. "We've focused on five critical portions of our business: safety, people, costs, the environment and production."

Working to lower employment turnover rates from 32 percent to 16 percent has helped "realize continuity" at the remote mine, where workers live on-site during their employment shift, Davey said.

"The working conditions have improved, and the living conditions have improved," he said.

Additional experience and knowledge about the deeply buried ore body has also contributed to the increased production rate, as has improvements to the mine's milling operation.

"All these combined have benefited and vastly improved our recovery and reliability," Davey said. "I expect to be slightly over 390,000 ounces — in that ballpark. That's where we will be this year."

Currently, Pogo is owned by Sumitomo Metal Mining Corp. and Sumitomo Corp., as former mine operator, Teck Resources, sold its 40 percent interest in the mine last year.

Hughes also anticipates additional gold production in 2010 from the start-up of the Kensington mine in Southeast Alaska, which has been working in recent months to complete its tailings storage facility. Other mine facilities were completed almost three years ago, but environmental appeals of the operation's approved tailings storage plan held up construction of that key component.

Once completed, Kensington is expected to produce about 120,000 ounces of gold annually. A third-quarter start-up could contribute as much as 30,000 ounces of value to the state's mining industry in 2010, according to Hughes.

Alaska's other metal mine, Greens Creek, is currently the sixth largest silver producer in the world, according to Szumigala's report. In 2009, the underground mine produced about 70,400 tons of zinc, 22,250 tons of lead, 7.5 million ounces of silver and 67,300 ounces of gold.

Coal production from Usibelli Coal Mine is also included in Alaska's Mineral Industry Report. Last year, Usibelli produced 1.86 million tons of coal, a 17 percent increase over the prior year. Some 60 percent of that coal remained in Alaska for electric power production, while the remainder was exported to customers in Chile and Asia.

Article quoted from The Alaska Journal of Commerce