Today the Red Dog mine is producing record profits for its operator, Teck Cominco Ltd., and its landowner, NANA Regional Corp., thanks to some belt-tightening, operational improvements to increase production and, most importantly, dramatic increases in zinc prices.

In 2002, when Red Dog logged a $28 million loss for Teck Cominco, the company recorded an average price of 35 cents per pound for zinc produced and sold. Lead, which is also produced at Red Dog, averaged 20 cents per pound then.

Since then, metal prices have been steadily climbing and most recently have shot upward. Teck Cominco received an average of $1.66 per pound for zinc and 99 cents per pound for lead it sold earlier this year, according to the company's second-quarter report released in late July.

These increased metal prices pushed Red Dog into record profits in 2006, with a reported $1.079 billion in gains reported by Teck Cominco. That's an increase of 230 percent compared to the prior year's net earnings of $325 million.

It appears that the mine will reach a similar level of profitability this year, possibly surpassing last year's profits record, according to mine managers.

For the first six months of 2007, Red Dog posted profits amounting to $265 million, compared to $240 million for the first six months of 2006, according to the company's mid-year report.

Production of the zinc and lead concentrates is expected to maintain at levels similar to the prior year, according to James Kulas, environmental superintendent at Red Dog.

“Strong prices are continuing,” he said. “With metal prices the same as last year, we should be in the same neighborhood.”

Although the open-pit mine at Red Dog isn't physically the largest operation in Alaska, the zinc and lead mine dominated Alaska's mineral production value in 2006. Red Dog made up more than 60 percent of the value of the state's mining industry activity, according to Alaska's Mineral Industry 2006 summary report.

Kulas and other long-timers at Red Dog have seen the remote operation struggle through some lean years since the mine began producing in late 1989. Low zinc prices have plagued the operation, which mines and mills the high-grade zinc and lead deposit year-round, stockpiling concentrate that is shipped via ocean-going barges during the short summer months.

Still Red Dog continued operating through the low metal prices cycle, cutting expenses and jobs when necessary. Sizeable capital projects were also completed in the mid-1990s and earlier this decade to increase the mill's throughput, thereby decreasing per unit production costs.

Currently, the mine employs 453 full-time, year-round workers and 91 seasonal workers, hired during the summer months when additional hands are needed for the shipping port and barge loading of the metal concentrate.

Shareholder hire averages 61 percent for all sectors at Red Dog, according to Kulas.

The recent increased profitability at Red Dog has quickened the pace for the mine's payback to operator Teck Cominco, which has recovered about $ 1 billion in initial and ongoing capital costs and will begin sharing profits from the mine with its Alaska Native partner.

In the company's agreement with NANA, Teck Cominco and its predecessor Cominco, paid the Alaska Native corporation annually an advance net smelter royalty of 4.5 percent each year.

Those royalty payments have grown as production increased at Red Dog. In fiscal year 2006, NANA received $29.6 million in net smelter royalties, an increase of nearly $13.7 million over the prior year, according to the Native corporation's annual report.

Total royalty payments from Teck Cominco to NANA from 1989 through 2006 totaled $177 million, Kulas said.

The transition from royalty payments to net profit sharing is expected to begin in the third quarter of 2007, as the company had only $19 million in advance royalty payments to recover after June 30, according to Teck Cominco's second-quarter report.

“The actual timing will depend on metal prices, sales volumes and other items affecting the calculation of net proceeds,” the company said in its report.

After Teck Cominco recovers capital costs, accrued interest and advance royalties, NANA will begin receiving a 25 percent share in the mine's profits. That percentage will increase by 5 percent after the first five years of profit-sharing, an escalating formula that will continue until NANA receives half of any profits that Red Dog produces later in the mine's life.

“Quite simply, we'll share more of our profits under the agreed-to formula for sharing the revenue coming out of this operation,” Kulas said. “Not only will it have a beneficial impact on NANA, it will have a significant beneficial impact on the rest of the Native corporations.”