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Weekly UpdatesAlaska's mining industry took a significant leap forward in early 2006, as the Pogo gold mine located in a remote, previously undeveloped region of Interior Alaska near Delta Junction began producing gold in February.
The 1,000 ounces of gold produced in a bar for media cameras during a ceremonial "first gold pour" on Feb. 12 was a milestone celebratory event, according to Karl Hanneman, manager of public and environmental affairs and special projects for Teck-Pogo Inc., operator of the state's newest hard-rock gold mine.
"I had a big grin on my face all day (of the first gold pour)," Hanneman said. "It wasn't the gold--it was being finished with all that we've been through."
Hanneman, a long-time Alaska placer miner, joined the Teck-Pogo staff eight years ago to help to shepherd the Pogo project through its advanced exploration work and an exhaustive public and regulatory review to obtain construction and operational permits. That included working through a last-minute environmental legal challenge mounted after construction started on the project in late spring of 2004.
That additional debate cost the construction crews several weeks of work, but the successful and relatively rapid resolution of the environmental challenge sent a strong message to the mining industry, according to Steve Borell, executive director of the Alaska Miners Association.
"The real message from Pogo is, 'look how the community comes together when they see a project maligned and attacked improperly.' It was an extremely positive experience. At the time, it didn't feel good," he said. "Environmental groups have had a free ride for decades and have not been held accountable, but this time, they were."
Additionally, the first construction season at Pogo faced unforeseen obstacles, including huge wildlands fires raging around the mine, burning thousands of acres and at one point, requiring workers to leave the mine and mill site. A helicopter working on-site was also dispatched to rescue prospectors working nearby for another mining company.
Pogo now joins Alaska's roster of large-scale hard rock mines, such as the Red Dog zinc and lead mine, the Fort Knox gold mine and the Greens Creek silver, gold, zinc and lead mine. Pogo is estimated to produce about 400,000 ounces of gold per year, which will significantly bump up the state's total value of minerals produced, a total of $1.5 billion estimated for 2005.
'GOOD NEWS'
"Pogo has again proven that a major mine can be permitted in Alaska," Borell said. "It's good news for the industry. If they know what the rules are, they can look at the development and calculate what the costs are to comply with the rules."
The mine development also sends a positive message to other rural areas of Alaska, which may be hoping for a similar type of industrial development and the related economic impact, he added.
"They have seen the benefits to Delta Junction, the good quality jobs and the tax base established," Borell said. "It should be encouragement to everyone else that they might have an opportunity for local jobs in the area."
In addition, Pogo's successful conclusion of its permitting, construction and start-up challenges has sparked additional interest in Alaska from the global mining industry.
"It's like a dam breaking loose. People have been waiting and watching them go through the permitting process," said Curt Freeman, a consulting geologist based in Fairbanks. "Now, not only has exploration resumed around Pogo by Teck and Sumitomo, but other companies realize this is good hunting country."
Teck Cominco, which holds a 40 percent interest in Pogo, built the underground mine and mill with partner Sumitomo Metal Mining Co. Ltd., which holds a 51 percent interest in the property. Sumitomo Corp. holds the remaining 9 percent interest. Teck-Pogo Inc. operates the mine on behalf of the Pogo joint venture.
IDENTIFIED IN 1991
The high-grade gold deposit was first identified in 1991 by geologists working the upper Goodpaster River area for Sumitomo. Exploration consultant WGM Inc. operated an exploration drill program in 1994 that first tapped the sloping, pancake-like mineral deposit, located in two 12-foot-thick quartz veins lying 600 feet to nearly 900 feet underground.
A third zone of mineralized rock, which lies about 250 feet deeper than the known second layer, as well as lower-grade material on the edges of the deposit, could offer additional mining opportunities in the future.
"When you are looking down at the pancake from above, the outer perimeter is sometimes too thin and too low grade, so we are mining in the core," Hanneman said. "Once we're underground and can get closer, we might be able to access (mineralization) with drilling that is cheaper, and thereby possibly convert some of the resource to mineable reserves."
TEN-YEAR LIFE
At present, Pogo's mineable reserve is estimated to contain 3.7 million ounces of gold, with an average grade slightly less than one-half ounce of gold per ton of rock. At a milling rate of 2,500 tons per day, Pogo's existing mine reserve will be depleted in 10 years, employing a crew of about 240 fulltime employees.
After spending nearly $350 million to develop and build the mine and mill complex, Teck-Pogo is already looking for opportunities to spread out their capital costs. The joint venture is back in the prospecting game, with a planned $2 million exploration program in 2006. That work will include drilling and exploration work "... looking at other geochemical anomalies on the property within two to eight miles from Pogo," Hanneman said. "We have begun exploring for additional reserves."
Last year, the joint venture spent about $1.2 million on exploration on the Pogo claim block, the first such prospecting budget since 2000.
In addition, Sumitomo will be prospecting on its own mining claims in the Pogo vicinity this summer, located 30 miles to 40 miles from the recently completed mine, Hanneman said.
And other companies are resuming exploration work in the region, some with drilling programs, others by restaking ground initially snatched up in a claim-staking rush sparked in the late 1990s by Pogo's discovery.
AN AREA RECENTLY EXPLORED
Except for a few historical small placer and lode operators in the area, that area of Interior Alaska was mostly unexplored by past mineral prospectors. Low gold prices in the late 1990s and early part of 2000 scuttled most exploration efforts on ground surrounding Pogo, while Teck-Pogo plodded on through advanced exploration work and more than three years worth of permitting negotiations and discussions with state and federal agencies.
"For a project like this to spring up out of what was formerly moose pasture, it should be exciting," Borell said. "Pogo is just a super example of how an undeveloped area can become a major project."
Another major mining company, AngloGold Ashanti, has been quietly working in the Pogo area since 2000, staking a large land position in the Goodpaster mining district as well as exploring lands initially staked by other companies.
AngloGold has focused attention on its LMS property, located south of Pogo, just a few miles east of Quartz Lake, near Delta Junction. The company has completed winter drilling both last year and this spring, according to state permits.
"When you look at Pogo, it's a tough target to explore for, because there's not a lot that stands out, geochemically or geophysically," Freeman said. "Some are finding similar kinds of mineralization, but whether they will be of the same size or grade potential, who knows?"
RELATED ARTICLE: Fairbanks-based Golden Valley Electric Association feeds mines: Pogo, other industrial users, increase electric draw in Interior.
ALASKA BUSINESS MONTHLY SIDEBAR
Two of Alaska's four large-scale hard rock mines are now receiving production electric power from the state's Railbelt electric grid, through Fairbanks-based Golden Valley Electric Association.
GVEA now provides up to 13 megawatts of power to the Pogo gold mine, which started producing the valuable metal in mid-February. Electric power was first provided in February 2005 to the mine site, via a 49-mile, 138-kilovort transmission line which cost Teck-Pogo, operator of the gold mine, about $10 million to build. In addition, Teck-Pogo paid GVEA about $2.3 million to construct a new substation to connect the mine with the existing power grid.
Initially, Pogo drew a minimal amount of power for construction crews and operation of the work camp on site, ranging up to 2 megawatts, according to Karl Hanneman, manager of public and environmental affairs and special projects for Teck-Pogo.
Now, the mine is ramping up toward its peak load of 13 megawatts, with an estimated annual cost of $7 million to $10 million a year, Hanneman said. A contract dispute with GVEA over the timing and cost of power purchased for production that arose in 2005 has been resolved, and the gold mine is buying firm power at the existing industrial tariff rate, Hanneman said.GVEA also provides about 35 megawatts of electric power to the Fort Knox gold mine, located northeast of Fairbanks. Unlike other Pogo and other GVEA customers, Fort Knox can experience power interruption at any time, although the electric utility typically provides advance notice through a telephone hotline connecting the two businesses.
"The working relationship between the two has always been good," said Lorna Shaw, Fort Knox spokeswoman. "When GVEA does have to shed load, or interrupt our power supply, they give as much notice as they can."
Even though Fort Knox power is classified as "non-firm," the mine still pays the same tariff rates as other large industrial users served by GVEA. Those annual costs have nearly doubled in 10 years, increasing from about $13.5 million in late 1996 to $22.9 million in 2005. At present, electricity is the mine's second largest expense. Only labor costs exceed power expenses, Shaw said.
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