Apprehension, caution among Alaska miners at meeting

Photo/Rob Stapleton/AJOC
Steve DeMolen with NC machinery shows Stan Peters, a heavy equipment operator at the Donlin Creek mine, a simulator that teaches drivers how to operate the new Caterpillar M series grader.
Photo/Rob Stapleton/AJOC

There was an air of apprehension among the 600-plus Alaska miners who gathered Nov. 5 in Anchorage for the Alaska Miners Association’s annual convention.

The state’s minerals industry is at a high plateau - production revenues and development and exploration spending surpassed $4 billion last year, a record - but there are new worries that the world financial crises will cause this to unravel by cutting funds for development and new exploration.

Miners are an optimistic lot, though. One sign of that is the record number of exhibitors signed up for the miners’ association convention trade show this year, a signal of confidence among suppliers and contractors, said Steve Borell, the association’s executive director.

There were warning notes, however.

“Those of us who managed to save some cash should survive, but not all of us will be here next year,” at the 2009 convention, said speaker Greg Beischer of Millrock Resources Inc.

In the current downturn, share prices of small and large mining companies have dived, and as many as 50 percent of the small “junior” mining companies, who finance their exploration through equity offerings on Canadian stock exchanges, could be casualties of the recession.

Even big companies aren’t immune. Anglo American and Teck are cutting back, although those companies’ Alaska projects haven’t been affected so far.

Others at the convention shrugged off the bad financial news as just another dip in a cyclical minerals industry.

“I’ve been in this business for 30 years and I’ve seen all this before,” said Don Stevens, of Stevens Exploration, an Anchorage-based geologic consulting firm. “The companies that don’t survive are those that are poorly managed. Companies that are well managed and that have retained some cash will get through this.”

Rick van Neuwenhuyse, president of NovaGold Resources, even sees positives.

“It means costs will come down,” he said. Construction cost inflation has doubled the cost of developing new mines in the past two to three years, van Neuwenhuyse said. He welcomes lower fuel prices and a cooling-off in markets for steel and other construction materials.

If companies have the cash, there are some real deals out there, van Neuwenhuyse said. In a downturn, properties can be acquired on the cheap.

In fact, van Neuwenhuyse started NovaGold just that way a decade ago. The company acquired most of its assets during period of gold price slumps, he said. That includes the company’s holdings in the large Donlin Creek gold project near the Kuskokwim River, where it is now a 50 percent partner with major miner Barrick Gold. NovaGold acquired the Alaska Gold Co. property in Nome as well as Rock Creek during period of price slumps. Rock Creek has just started producing gold.

The pain is mostly felt among companies working in industrial metals like copper and zinc, where a falloff in industrial activity has caused prices to dip sharply. Copper prices have dropped from $3.50 per pound to $1.75 per pound in a short time. With prices like that, companies with new copper projects must have courage. “It costs $2 to produce a new pound of copper,” van Neuwenhuyse said.

Gold prices are holding up better, although they have dropped too. Companies with gold projects are considered to be better positioned, Beischer and other speakers at the convention said.

Joe Beedle, executive vice president of Northrim Bank, told the convention he expects the national recession to be extended and deep, although Alaska’s economy has been largely spared so far. The shakeout in the world mining industry has some positives, however, because high-cost mines are being closed and capacity is being taken out of the market.

Beedle agreed with van Neuwenhuyse that costs will drop, a positive, and that the downturn may blunt some of the effectiveness of environmental extremists.

But on the global level, there will be consolidations and big mining companies will get bigger. Even companies with liquidity may not spend and many projects will be put on hold or go into cold storage, Beedle said.

Minerals companies do have some advantages over firms in other industries, Beedle said, because they are used to projecting costs, profitability and schedules in a uniform manner and working with a financial community, mostly Canadian, that is experienced in mining. The Canada connection is important because 70 percent of the financing for Alaska mining projects comes from that country.

Large Canadian banks that work with the mining industry, such as the Royal Bank of Canada, did not acquire risky assets as did large U.S. financial institutions, and are thus better off now than their U.S. counterparts, Beedle said.

“Banks like these know the mining industry and they are patient capital,” meaning lenders will look to the long term on their financing, not demanding quick returns. “However, expect them to be at the table with you in making decisions, and they are tough,” Beedle said. “The better you are able to project your costs and revenues, the easier it will be to get financing.”

But that can be a tough order in the current unsettled environment. “The challenge for us is to determine what long-term metal price we should use,” van Neuwenhuyse said.

There are other problems that add to the woes, like currency swings, van Neuwenhuyse said. This is particularly important for Canadian-based mining companies, which include most of the firms exploring in Alaska.

“We’ve seen currency swings of 35 percent,” van Neuwenhuyse said. Some of NovaGold’s own projects and those of other companies based in Canada have to deal with these problems.

Like Beedle, van Neuwenhuyse does not see a speedy recovery of the economy. “They’ll sort this out (the world’s financial and government leaders) but the only way out is to inflate the economy. To do that, they’ll have to print massive amounts of money.”

The miners’ association’s annual convention is mainly an opportunity for the state’s mineral industry to get together to compare notes and technical reviews of exploration projects.

Updates on current projects underway are a staple of the convention, and companies aren’t shy about sharing accounts of bumps they have encountered.

Among several projects featured, NovaGold’s new Rock Creek project, located 10 miles north of Nome, has just started operations and is expected to reach its expected full rate of production by mid-2009.

Company President van Neuwenhuyse said he is optimistic that new resources around the existing mine as well as nearby satellite gold deposits will at least double the mine life beyond the five years of production expected with current gold reserves.

An unusually heavy snowfall last winter and a rapid meltoff in late spring complicated the final stages of construction, presenting real challenges in managing the meltwater runoff, van Neuwenhuyse said.

Rock Creek also encountered increases in construction costs and now that production has finally started, declining gold prices, van Neuwenhuyse said.

Steve Teller, of Mystery Creek Resources Inc., said his company is continuing to work on the small, high-grade Nixon Fork mine northeast of McGrath, which Mystery Creek produced recently until encountering unexpected problems with the complex underground ore body.

Basically the company encountered voids, or open spaces, in the limestone formation where the modeling had predicted veins of ore, a disappointing discovery.

Mystery Creek is continuing to examine and explore the ore body, though, and Teller believes the mine will be back in production. The multi-metal ore is of high quality and the company believes there is substantial potential there, Teller said.

Karsten Eden, of Silverado Gold Mines Inc., described his company’s exploration program at the Nolan Creek Mine near Bettles, on the south flank of the Brooks Range. Nolan Creek is a historic placer producing area and Silverado produced placer gold there in the past, but in recent years has focused on attempting the find the lode gold source of the placer gold, Eden said.

Silverado believes it has now accomplished that. A small underground mine at Nolan Creek is in the planning stages.

Among large projects, exploration drilling and development work at the large Donlin Creek gold project near the Kuskokwim River is nearing completion. The project will soon shift into the permit stage, which is expected to take two to three years, van Neuwenhuyse said. NovaGold is a 50 percent owner of Donlin Creek. The project still appears to be attractive.

At the large Red Dog Mine in Northwest Alaska, TeckCominco’s activities are focused on permitting an expansion of the mine to a new pit, Jim Kulas, the company’s environmental manager, told the conference.

The company has about a year and a half of production left at its present pit and would expand to mine an adjacent ore body if the government approvals come through, Kulas said.

11/09/2016 - 1:09pm