“Last year was a peak year, but looking at what we anticipate for this year, there's both bad and good news,” said Freeman, president of Avalon Development, a Fairbanks-based geological consulting firm.

Freeman presented an overview of Alaska's mining industry to the Greater Fairbanks Chamber of Commerce on Feb. 5 and to the Fairbanks chapter of the Alliance on Feb. 6.

The good news is that industry interest in Alaska's mineral potential is increasing, along with its accompanying spending, he said. State estimates for mineral exploration spending in Alaska during 2007 are $285 million, a 56 percent increase over the $176.5 million spent in 2006.

Development spending in 2007 actually decreased from the prior year, due to the completion of the Pogo gold mine in eastern Interior Alaska. But the value of metals produced in Alaska increased dramatically in 2007, to $3.4 billion, compared to $2.8 billion in 2006.

Current state estimates for Alaska's mining industry value in 2007 is $3.96 billion, according to Freeman, up from $3.5 billion in 2006.

Exploration spending in Alaska was 33 percent of the total exploration monies spent in the United States in 2007, he added, a small portion of the $10.5 billion spent worldwide by mineral prospectors.

“There were 29 projects in Alaska that spent more than $1 million each, in 2007,” Freeman said. “That's more than the total exploration spending three years ago for the entire state.”

Mineral exploration spending in Alaska bottomed out in 2001, with $23.8 million spent throughout the state that year, according to state records. As metal prices began to increase, so did exploration spending, with $25 million spent in 2002 and $27 million spent in 2003. The first real jump occurred in 2004, when prospectors spent $70 million in Alaska, and more than $100 million on exploration in 2005.

“Why are they spending like this? The demand for metals, primarily from Asian countries like China and India, are driving the metals boom,” Freeman said, citing a chart showing triple-digit percentage increases in market prices for a variety of precious and base metals that prospectors are currently looking for in Alaska. “For the first time I can remember in 25 years, all the metals are up - some are at historic highs.”

Between January 2002 and February 2008, gold prices increased 194 percent, zinc prices increased 205 percent, platinum was up 232 percent, silver jumped 264 percent, copper prices increased 371 percent, lead prices 579 percent, uranium 704 percent, molybdenum 709 percent and nickel prices increased 897 percent.

Available land to explore in Alaska also helps attract investment from junior exploration companies and major mining companies, Freeman said. “There are 191 million acres of land in Alaska open to mineral extraction, more land than what is open in the rest of the United States combined,” he said.

Active mining claims currently cover 3.6 million acres of land in Alaska, less than 2 percent of the state's total land mass, Freeman added.

Past success also draws more industry interest in Alaska's mineral potential. Alaska's gold resources have grown from just a few million ounces in 1980 to nearly 140 million in 2005, Freeman said.

“It's a fairly steep up-curve and with some new resource estimates expected to come out for Pebble and Donlin, I expect a new number for gold resources,” he said. “We have a discovery rate of 10.4 million ounces a year.”

Past costs to discover those millions of ounces of gold are also lower in Alaska than the industry average of about $20 per ounce. Since 1996, the average discovery cost was $5.27 per ounce of gold, Freeman said.

“Companies working throughout the rest of the world are finding costs in Alaska remarkably low,” he said. “Even with our infrastructure challenges, they see this as a good place to look.”

One drawback to mineral exploration in Alaska is the industry's perception of unfavorable public policy and regulatory environment in Alaska.

Results from the Fraser Institute's annual survey of worldwide mining and exploration companies place Alaska at “Éa dismal 24th place,” Freeman said, regarding the state's policy potential index. The low ranking was due in large measure to Alaska's land status and regulatory uncertainty concerns, he said.

When evaluating mining jurisdictions solely on mineral potential, Alaska ranked third out of 65 in the Fraser Institute's 2007 survey, Freeman noted.

Other drawbacks include lack of infrastructure and increasing costs for labor and equipment required for mineral exploration.

“Alaska's two biggest logistics Ôtrolls' are lack of electrical power grids and lack of surface access (roads and railroads). Neither of these has changed significantly in the state in recent years and 2008 will be no different,” he said. “Many of Alaska's mineral projects are accessed only by helicopter. Helicopter costs have gone up 50 to 100 percent in the last four years and fuel rates for those helicopters have doubled in the same time period. Helicopters used to consume 30 percent of a given remote site mineral exploration budget. Now they are 40 to 50 percent of the budget, and climbing.”

Diamond core drilling costs have also increased dramatically in recent years, from an average of $16 per foot in 2002 to $42 per foot in 2008, according to Freeman.

“Alaska (drilling) costs have tripled in the last five years and are likely to continue upward as demand continues to outstrip supply,” Freeman said. “Those areas where we have seen significant real cost increases include labor costs, remote camp costs, helicopter costs, drilling costs, helicopter and fixed wing costs, airborne geophysical costs, fuel costs, analytical costs, freight costs and insurance costs.”

His prediction for 2008: investment funding for Alaska mineral exploration will be tighter in 2008 than the prior year, with decreased spending on less advanced projects.