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Weekly UpdatesMine managers at the Red Dog zinc, lead and silver mine .in Northwestern Alaska are implementing a $25 million-plus capital budget this year, the second year in a row that strong metal prices have helped to fund substantial improvement spending at the mine.
Projects this year include mill upgrades, a new lime-handling system for water treatment needs and the relocation of a cyclopac, which uses centrifugal force to remove fluid from ore concentrate, changing its density.
"It's not related to processing more tons, but to improve our ability to deal with the tonnage that we do treat," said John Knapp, general manager of Alaska's largest mine operation, a Prudhoe Bay-sized economic powerhouse within the state's mining industry.
Exploration work also will continue this summer at Red Dog to evaluate a possible shale gas resource that could replace some of the 18 million gallons of diesel shipped to the remote industrial site each summer. Drilling on the gas project started last summer, after Teck Cominco, operator of Red Dog, acquired permits and approved the initial $3.9 million spending program.
Gas exploration drilling had been considered but not funded in previous years, partially due to tight spending budgets at the base metals mine. Early in this decade, Red Dog posted significant operating losses, as much as $20.7 million in 2002, when zinc prices averaged about 35 cents per pound.
But as metal prices began climbing in the last year or so, that trend has turned around, putting Red Dog well into the black. The mine produced a $268 million profit in 2005, a record for the open-pit mine that partners with NANA Corp. and the Alaska Industrial Development and Export Authority.
That 2005 profit was based on an average zinc price of 63 cents per pound, less than half of recent market prices of $1.50 per pound. In the first quarter of 2006, Red Dog posted a $118.9 million profit, compared to $34.9 million the first quarter of 2005, setting up the potential for the mine to set another operating profits record this year.
MINING INDUSTRY IN ALASKA BOOMS IN 2005 AND IN 2006
As the economic ball turns favorably for Red Dog, so does Alaska's mining industry. Last year, the state set a record of $1.8 billion for the amount of exploration and development spending and the value of mineral production taking place in Alaska.
"Alaska's mineral industry had a very strong year in 2005, propelled by strong metal prices and renewed interest in Alaska's outstanding mineral endowment," said David Szumigala, state geologist, and Rich Hughes, minerals development specialist, in their annual preliminary mining industry review released in January.
The $1.8 billion value achieved in 2005 is a considerable increase over the $1.6 billion calculated in 2004, which was a record-setting year itself.
Since 1996, Alaska's mineral industry has typically hovered around the billion dollar mark in the total spending and production value. Values in 2004 jumped in all three categories: exploration spending, development spending and the value of production.
That growing trend continued in 2005, with exploration spending increasing 40 percent to $100.9 million, development spending increasing 60 percent to $347 million and total production values increasing by nearly 19 million to $1.357 billion.
Szumigala and Hughes predict that Alaska's mining industry will remain bolstered by strong metal prices and increased exploration spending. "Alaska has world-class mineral deposits and Alaska's major mines are showcase examples of modern mines," the two wrote. "Alaska remains highly unexplored compared to other regions in the world, but recent exploration successes hint at Alaska's excellent mineral discovery potential."
Mining is shaping up to be another strong economic force in Alaska this year, as metal prices remain strong, exploration companies are funding prospecting work, projects are advancing to construction and new mines begin production. "I don't see any changes in the fundamentals for the state, unless the gold price goes so high that a number of people jump into the placer business," Szumigala said. "Overall mineral industry value is predicted to be between $1.7 billion and $1.85 billion."
Others think the industry could go higher, approaching or even surpassing the $2 billion mark. "I kind of think it will (hit $2 billion), by the virtue of Pogo (gold mine) being up and running, if nothing else," said Steve Borell, executive director of the Alaska Miners Association, in mid-May. "If metal prices stay consistent with today's prices, it could happen."
ALASKA'S MINE PRODUCTION
Much of the variable in Alaska's mining industry value lies within the metals market and Teck Cominco's selling price for zinc. Operator of the Red Dog mine, Teck Cominco's sales of zinc and lead concentrate, which has some silver content, accounts for 60 percent of Alaska's mining industry values.
With zinc prices on the climb in 2006, Red Dog, which is the world's largest zinc producer, could help to boost Alaska's mineral industry value up to the $2 billion mark.
In 2005, the mine's work force of about 450 employees milled a little more than 3 million tonnes of ore, producing 568,000 tonnes of zinc concentrate and 102,000 tonnes of lead concentrate. Total revenues reported in 2005 were $559.5 million at Red Dog, with slightly half of that as reported by Teck Cominco as operating profit. The company averaged 63 cents per pound for zinc in 2005, less than half the price the metal is currently trading at.
Teck Cominco paid to its Native partner, NANA Corp., $20 million in royalties in 2005, and has paid $105.6 million to the Native corporation since the partnership formed in 1982, according to mine managers. The company also pays the Northwest Arctic Borough payments in lieu of taxes, an amount that totaled more than $6 million in 2004, according to an economic study of Alaska's mining industry completed by the McDowell Group in early February.
That report also reported that Red Dog generated $46 million in total wages in 2004, accounting for 30 percent of all private-sector employment in the Northwest Arctic Borough.
About 54 percent of the mine's workers are NANA shareholders, according to John Knapp, general manager, who recently came to Red Dog from the Polaris lead-zinc mine in Nunavut, Canada. "It's a much more diverse work force," he said, in a recent interview.
Continued exploration of the high-grade Red Dog deposit has revealed substantial additional mineralization. Known reserves and resources give Red Dog a 25-year mine life, concluding in 2031, according to Jim Kulas, environmental superintendent. "Other resources exist but they need additional work to prove them mineable," he said.
Alaska's other major mine producers include the Fort Knox gold mine in the Interior, near Fairbanks, the Greens Creek mine in Southeast Alaska, near Juneau and the Usibelli Coal Mine near Healy.
In 2005, Fort Knox produced almost 330,000 ounces of gold, a slight decline from the 338,000 produced in 2004, according to its owner and operator, Toronto-based Kinross Gold. Production for 2006 is forecasted to be lower than 2005, with improved recovery rates expected to be offset by lower grades, the company said.
Currently, the mine's managers are investigating a new processing technique, heap leaching, to the existing chemical extraction process. The method is being considered as a cost-savings method of processing low-grade gold ore at Fort Knox.
"Although final metallurgical results won't be complete until mid-August, preliminary results are still encouraging," said mine spokeswoman Lorna Shaw. "We have submitted permit applications to the Corps of Engineers and the state agencies. We also have initiated detailed engineering on a leach pad design and the mill expansion required to process solution from heap leach. This engineering will help us to define costs and develop a construction schedule for the proposed project."
Construction of the valley-fill heap leach pad, where ground mineralized ore would be placed, could begin later this year. On a heap leach, ore is sprinkled with a cyanide solution, which attracts gold, and is recovered at the bottom of the pad. Fort Knox is considering a heap designed to contain 160 million tons of low-grade ore, coveting 279 acres of ground.
At present, Fort Knox is operating with a mine life concluding in 2010, with mill processing scheduled to conclude in 2012, a concern to the mine's work force of about 430 employees.
"With the rise in the price of gold and the potential to heap leach, we're currently working on a new life of mine plan that includes pit expansion and heap leach at higher gold values and adjusted cut off grades," Shaw said.
DEVELOPMENT SPENDING INCREASES, MORE MINES OPENING IN ALASKA
The category of evaluating Alaska's mineral industry that fluctuates wildly from year to year is the development stage-a transitional period where mineral exploration projects move into the construction period, prior to production. Capital spending by producing mines is also included in this category of Alaska's mineral industry.
Development spending in 2005 increased 66 percent, jumping from $209 million in 2004 to $347 million. Development of the Pogo gold mine by partners Teck Cominco, Sumitomo Metal Mining Ltd. and Sumitomo Corp., is the major contributor in 2005, according to the state report.
Construction of the underground mine, located about 40 miles northeast of Delta Junction, is estimated to cost nearly $350 million. Most of that spending took place in 2005, although actual construction kicked off in early 2004.
Most of the facilities were completed and the first ore was brought to the mill in early January, with a ceremonial first gold pour occurring a month later.
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