Progress check: Kensington Mine two-thirds complete, tailings issue still in limbo

Coeur anticipates 100,000 ounces of annual gold production

Posted: Sunday, February 18, 2007

On a crisp day in early February, a helicopter lands on a beach 45 miles north of Juneau after a 30-minute flight passing over Berners Bay and national forest land covered in muskeg and scrub forest.

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The remote site is teeming with activity - all aimed at readying the Kensington Mine to begin gold production by the end of the year.

"We are fairly well advanced in construction there - about, I'd say, maybe two-thirds of the way complete," said James Sabala, executive vice president and chief financial officer of the mine's parent company, Coeur d'Alene Mines Corp., on Wednesday at a Wall Street Analyst Forum.

The mine anticipates 100,000 ounces of annual gold production. With 1 million ounces of reserves, current projections of the mine's life are 10 years, although that could increase with further exploratory drilling.

Capital costs have been projected at $190 million. A total of $130.8 million in capital costs were incurred for 2005 and the first nine months of 2006.

When a reporter and photographer visited this month, they found several major projects under way.

On Feb. 1, a tunnel that will connect the two sides of the mine was 3,300 feet from completion, with blasting continuing daily.

To process the gold, the mine is constructing a mill, which is expected to be finished by the end of spring. It's located on the Jualin side of the mining property.

Administrative offices and a laboratory are being constructed.

Employee recruitment also has increased, and beginning miner training is planned for spring. Some graduates of the 2006 training sessions were already at work and undergoing further safety training.

One was Arne Weiss of Saskatchewan, Canada, who now lives in Juneau and has worked as a surface equipment operator at Kensington since April 2006.

"I like it because I spent 16 years in an industry where it was five days a week, eight hours a day. What I like about the mining industry is it gives me a lot of time off. I get one whole week off and I can go hang out with my kid," he said.

Much less progress is evident in a pending lawsuit that could affect the way the mine's tailings are handled.

The mine has been permitted to store its tailings in Lower Slate Lake, but a Juneau-based environmental group, Southeast Alaska Conservation Council, has filed a lawsuit contending that that option is in violation of the federal Clean Water Act.

Web links

Kensington Mine's Web site: www.kensingtongold.com

Southeast Alaska Conservation Council's Web site: www.seacc.org

The group further worries that allowing the tailings to be stored in a water body could serve as a precedent for other mine companies.

The suit has been awaiting decision by the Ninth Circuit Court of Appeals and is expected any day. Coeur officials have not commented on what the company would do if the ruling goes against it.

"We do believe the permit is valid, and we will continue to defend it vigorously. We feel very good about the engineering and the science that underlie this permit, and it's important to note that we do have the permit," Sabala said.

A report from the Institute of Social and Economic Research at the University of Alaska Anchorage predicted that $195 million will be spent on statewide mining construction in 2007. The largest shares are expected to go into the Kensington Mine and the Rock Creek Mine outside Nome.

Processing mill site

The processing mill is located on the Jualin side of the property and is one of the most noticeable points of progress.

"Right now we are in the process of putting in the support steel for all the equipment that goes in here. Pumps, tanks, all of the equipment that it takes to process the ore. Plus all the utilities," said Tom McIntyre, building project supervisor.

The mill is powered by diesel generators and will have the capacity to process roughly 275 ounces of gold per day or 100,000 ounces annually.

Future use of alternative energy to power the mine is uncertain. Possibilities could include a small hydro project or wind generators.

"We haven't really looked at anything really seriously. There are some things that we might be able to do down the road, but we've got to get the mine built," said Tim Arnold, vice president.

Lower Slate Lake

Coeur's plan to put 4.5 million of its 7.5 million tons of tailings into the 20-acre Lower Slate Lake prompted a legal battle that has stalled the continuation of further construction work on a dam for the lake. The remainder of the waste would be backfilled into the mine when it ceases operations.

The Southeast Alaska Conservation Council cites a provision of the federal Clean Water Act that prohibits mine fill from being dumped into waterways. The conservation group also worries that in doing so, the mine would set a dangerous precedent that could be used by future mining companies.

On Dec. 8, the Ninth Circuit Court of Appeals denied a request by Coeur to lift an injunction barring construction at the dam site.

"SEACC has shown a likelihood of success on the merits because it has argued persuasively that the Corps' (of Engineers) permit to Coeur Alaska violates the Clean Water Act," the court document said.

The court also ruled that SEACC had shown that a permanent dam would kill aquatic life in the lake. Coeur has not disputed this.

A public relations campaign was launched recently by Coeur Alaska deriding SEACC for its lawsuit against the mine. In the "open letter," which has been published as an advertisement in the media and is posted on Coeur's Web site, the letter states:

"The following workers want to know why you and your colleagues at the Sierra Club and Lynn Canal Conservation are trying to take away our jobs. The mine has demonstrated its environmental soundness."

No ruling has yet been made on whether the permits are in violation of federal laws.

Water quality

Water quality issues became a source of controversy last year at the Kensington mine when it was found that runoff from construction activity was polluting nearby Johnson Creek with sediment.

In December 2006, the mine paid more than $100,000 toward settling a violation by the Environmental Protection Agency. A monetary fine amounted to $18,334, while $90,000 was paid toward the purchase of a wetland near Juneau.

Precautions have been made to ensure that the violation does not happen again, said Tim Arnold, vice president.

A lined ditch was built to allow water to flow from the construction area into a controlled area where sentiment can be removed.

Additionally, the water treatment plant was upgraded to triple its capacity to handle larger runoff flows.

"Those (early-season) storms affected everybody here. I worked over at Greens Creek at the time, and we were down for a number of days because of the storm. That was a term we like to use, a hundred-year storm event. That was a record-breaking rainfall period for us," said senior water operator Jeff Rogers.

Inside the mine

Construction work is taking place on both sides of Lions Head Mountain. The Kensington side is on the north, while the Jualin mine is on the south side.

Workers have been busy blasting a 15-by-15 foot tunnel to join both ends of the tunnel below the mountain. In early February, the two bores were separated by 3,300 feet. The tunnel is approximately 65 percent complete. The expected completion date has been slated for sometime in June.

Underground construction is also being done as part of further exploratory drilling, although Tim Arnold, vice president, said "the tunnel itself is our primary focus right now."

Work is also being done on creating underground areas suitable for warehousing and maintenance facilities.

"We'll have no shop on surface for most of the mobile equipment. We do that to help keep the footprint of the mill site down to as small as you can. It's also to be real handy to have the equipment maintained real close to where you work," Arnold said.

Mine Workers

In early February, 414 people were employed at the mine, eight of them women, said Meg Day, human resources manager.

Many have roots in the North, but not all are from Southeast Alaska.

Some don't even live in the region.

One example is Larry Akaron, who grew up in the Yukon, but now commutes from Anchorage.

"It's all right. I like coming out here," he said. "It's a nice environment. The country's nice. If I was going to work remote, this would be it."

Akaron is no stranger to remote work - he toiled on the North Slope oil field for a few months but said that the scenery wasn't as pretty and the weather was much colder.

When operations begin, the mine expects to employ just over 200 people. While a significant portion of the current workers have sleeping quarters at the mine site, they'll have to be gone once operations begin, said Tim Arnold, vice president.

The mine does not have the permits to house workers on site, he said. In some ways, this is a benefit because it cuts costs for catering and housing. Ideally, however, it would be nice to have the option to at least temporarily house workers in case of an emergency, he said.

Miners' schedules, once operations begin, are still being debated, Arnold said. What's certain is that most workers will commute daily from Juneau by taking a bus to Cascade Point. Goldbelt Native Corp. has been building a docking facility there for a ferry system to take workers across Berners Bay.

The commute is expected to take about one hour, fifteen minutes each way. Most miners will work 12-hour shifts.

That doesn't worry lifetime Juneau resident Taylor Smith, 20, who's been employed for eight months as an entry-level miner.

"It's a twelve-hour shift. It's not that bad. You've got these headlamps and they are pretty helpful. It's working underground, that's pretty much all I can say about it. I hardly ever get any sunlight," he said.



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