ANCHORAGE - Plans to develop Donlin Creek, Alaska's largest known gold deposit, got a big boost when mining giant Placer Dome announced plans to become majority owner and inject tens of millions of dollars into the project.
Placer Dome exercised an option to acquire a 70 percent interest in Donlin Creek from NovaGold, a company based in Vancouver, British Columbia. Under the agreement, Placer Dome will invest $30 million, conduct a feasibility study and commit to turning the Western Alaska prospect into a working gold mine by 2007, producing no fewer than 600,000 ounces a year.
The Donlin Creek prospect is located about 150 miles northeast of Bethel on a tributary of the Kuskokwim River.
British Columbia-based Placer Dome currently has a 30 percent stake in Donlin Creek, with NovaGold owning the rest. The joint venture's ownership structure would flip-flop after Placer Dome meets the conditions of the agreement.
The massive Donlin Creek deposit contains at least 28 million ounces of gold. It ranks as the 16th largest gold deposit in the world, said Rick Van Nieuwenhuyse, NovaGold president.
"It's a huge, huge resource," Van Nieuwenhuyse told participants Thursday at the Pac Com conference in Anchorage.
But Donlin Creek needs to clear a slew of hurdles before production can begin and "there are plenty of places to trip and fall," Van Nieuwenhuyse said.
Permits and power are two main obstacles.
The mammoth open-pit mine needs a stack of state and federal permits. Even if the state streamlines the permitting process as it is expected to do under Gov. Frank Murkowski, Donlin Creek must comply with the National Environmental Policy Act and clearing NEPA can take several years.
A power source is the other hurdle. Donlin Creek is far from any electrical lines.
Two Native firms, Calista Corp. and the Kuskokwim Corp., which own the mineral rights and land at Donlin, are trying to find a way to power the mine and bring cheaper electricity to their rural shareholders. A subsidiary of Calista, the Bethel-based corporation for the vast Yukon-Kuskokwim region, has hired an energy consultant who said Thursday that a coal-fired plant in Bethel looks like the cheapest option.
The plant would run on a yearly supply of some 400,000 tons of coal shipped to Bethel from British Columbia, said Frank Bettine, the consultant. A transmission line would bring the power to the mine.
Using Alaska's huge storehouse of coal to power Donlin isn't a possibility in the short term because of cost, said Bettine.
A transmission line from Nenana is also under consideration. But one of the attractive features of a Bethel coal plant would be the estimated 240 jobs it would directly and indirectly create, he said.
Also, if Bethel had a coal plant, power lines would snake between it and dozens of villages in the Y-K region that would lower the staggering electricity bills residents now pay, he said.
But convincing potential state lenders, such as the Alaska Industrial Export and Development Authority or the Denali Commission, to invest in a power plant that uses foreign coal could be a tough sell, Van Nieuwenhuyse acknowledged.
"I can't imagine a state (agency) funding a Canadian coal project," he said, adding that NovaGold and Placer Dome are also studying how to best power the mine.
Despite the permitting hurdles and the unknowns about energy, the prospect of 1 million ounces of gold a year waiting to be dug from the earth makes Donlin Creek entirely viable, Van Nieuwenhuyse said.