Donlin gold prospect heads to permit stage

Mine could produce 1.3 million ounces of gold annually over 21 years, employ 400 to 500 workers

Posted: Monday, May 04, 2009

ANCHORAGE - Forget Pebble for a minute. There's another huge project gearing up in Southwest Alaska, and it would turn a swath of spruce- and tundra-covered land owned by Alaska Natives in the Yukon-Kuskokwim region into one of the world's largest gold mines.

The mining companies running the Donlin Creek exploration project say their studies show potential for making billions, and they plan to apply soon for the environmental and construction permits they'll need to build the open-pit mine, one of them announced.

The companies - NovaGold Resources, a small mining company, and Barrick Gold Corp., one of the world's largest producers, both based in Canada - are gunning to build Donlin because of its massive storehouse of gold.

Building Donlin also would deliver the long-held dream of some corporate Yup'ik Native leaders to create a large industry in the Yukon- Kuskokwim region, where the unemployment rate is one of the highest in the nation and typically is the highest in Alaska.

During its exploration phase, Donlin employed people from 32 Interior villages and it gathered a healthy amount of community support, said Matthew Nicolai, chief executive of Calista Corp., which is owned by Yup'ik shareholders from the region.

Though Donlin is moving faster toward permitting than Pebble - a massive copper and gold prospect in Southwest Alaska hundreds of miles to the south in the Bristol Bay region - it hasn't generated nearly as much public attention and political conflict.

But Donlin is also a large-scale project and it could create some big changes in the river-dependent communities of the region.

"The real impact is going to be seen at the region out there with all of the wages that will be taken home," said Steve Borell, executive director of the Alaska Miners Association.

City leaders in the region's biggest population hub, Bethel, are still waiting for more information about the project before making up their minds about it, said Dan Leinberger, the vice mayor.

The city would benefit financially if Donlin built a large port facility close by, he said.

But Bethel residents also don't want any spills in the Kuskokwim River or erosion from mine-related barge traffic that could interfere with salmon habitat, he said.

"The passion on either side probably increases the closer you get to the (proposed) mine," Leinberger said.

Risks cited by environmentalists based in Alaska include the companies' plans to use cyanide in the gold extraction process and the likely presence of acid-generating rock and trace amounts of mercury in the Donlin ore body.

Donlin sits on a reserve of nearly 30 million ounces of gold. If it were running today, it would be one of the world's largest gold producers - possibly the third-largest in the world, excluding Pebble, which sits on a whopping 94 million ounces of gold. At recent gold prices, Donlin's gold is worth billions.

Mining officials said Tuesday that Donlin could produce 1.3 million ounces of gold annually over 21 years. They said the mine could employ 400 to 500 workers.

"There are larger mines out there, but by a gold mine standard, this is a very large mine," said Greg Johnson, vice president of strategic development for NovaGold Resources.

By comparison, the world's largest gold producer, the Grasberg copper and gold mine in Indonesia, produced 1.2 million ounces of gold last year. (That was an off-year for Grasberg, which often produces nearly twice as much.)

Under agreements hammered out with area Native corporations, Donlin would also pay royalties to Calista, which owns the minerals, and Kuskokwim Corp., which owns the surface land. The mine would also have to pay several taxes to the state.

Just building Donlin poses some major economic challenges.

NovaGold estimated Tuesday that Donlin will cost $4.5 billion to construct. That's 10 percent higher than the cost estimate given two years ago.

"Wow, is that economic or not? I don't know," Borell said after the morning announcement that revealed details from the companies' feasibility study.

NovaGold said that the costs of the project are still being reviewed and they won't have to raise the money for a few years. Right now, the mining companies are focused on permitting, Johnson said.

The main reason for the high cost is the project's remote location, he said.

The Donlin prospect is about 270 miles west of Anchorage and about 175 miles upriver of Bethel, without road access to any cities or a source of electricity to power a mine. The companies want to build a 76-mile road from a proposed Kuskokwim River port to the mine site to haul most of their supplies.

The companies' preferred plan for power right now is to bring diesel in double-hulled tankers to Dutch Harbor and barge it to the Bethel area, where the diesel would be transferred to double-hulled river barges that would take it to the proposed port near Aniak. The fuel would then be sent through a 74-mile buried pipeline to the mine.

They plan to supplement their diesel consumption with a 35-megawatt wind farm that would offset roughly 8 percent of the fuel costs, according to NovaGold's Web site.

The Donlin exploration project probably has one of the highest Native hire rates of any industrial employer, regional Native leaders said Tuesday.

The Native shareholder hire is about 90 percent, said Joe Obrochta, president of Calista-owned Chiulista Services Inc., which runs all of the subcontracted work at the exploration site.

"We've proved that hiring people from inside the region is viable," Obrochta said.

"I'm hopeful for the mine and hopeful for prosperity in the region," he said.

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