Red Dog

Benefits To Alaska From The Ground Up

The so-called clean water measures that could be on the statewide ballot this fall are “dangerous and deceptive initiatives” that Alaskans cannot afford, according to a key executive with a major Alaska Native corporation.

Speaking before a packed RDC breakfast meeting in Anchorage last month, Rosie Barr, Resources Manager for NANA Regional Corporation, spoke out strongly against the initiatives while pointing to the many economic benefits mining has brought to Northwest Alaska.

Barr believes her corporation’s experience in developing the world’s largest zinc producer on its land in Northwest Alaska is a prime example of how a rejuvenated mining industry can become a cornerstone of the Alaska economy while coexisting with the environment and the local subsistence lifestyle.

The Red Dog Mine has provided an economic foundation to the Northwest Arctic Borough that supports jobs and a local government revenue stream that enables residents in the region to become more selfreliant, Barr said. The mine has injected a half billion dollars into the NANA region.

When Congress authorized the state and Native corporations to make land selections, many of the decisions were based on natural resource potential, Barr explained. That was not necessarily the case Rosie Barr for NANA, which made the majority of its land selections based on subsistence use patterns and core village areas.

At the time the Alaska Native Claims Settlement Act was passed, several mineral resource areas were known to exist in the region, an area roughly the size of Indiana and home to 6,500 residents. In 1980, NANA chose a 120squaremile parcel, which included the Red Dog deposit because NANA leaders saw Red Dog as a means of developing a sustainable economy within the region.

A number of meetings were held and shareholders recognized the need for a cash economy because of the increased cost of living in a modern society. “Our shareholders also wanted to ensure that our land and subsistence resources were protected as they are so critical to our cultural well being,” Barr said.

In 1980, NANA’s 4,400 shareholders approved mining and Congress gave the green light to the land selections at Red Dog.

“For the Inupiaq people of Northwest Alaska, it was a defining moment that has brought so many positive benefits to our corner of the state,” Barr said. She noted there are 11 villages in the region and 90 percent of the inhabitants are Inupiaq, many of which rely on a traditional subsistence lifestyle.

“Our shareholders are not strangers who merely hold paper stock certificates; they are our friends, our neighbors and our relatives,” Barr said. “Our values are evident in the many projects we undertake, such as the preservation of our culture and language.” Barr pointed out mining has resulted in stronger local economies in rural Alaska, more self-reliant communities, educational resources and opportunities, and good jobs that allow residents to stay in villages and continue their subsistence way of life.

In 1982, NANA entered into anv agreement with Cominco (now TeckCominco) to finance, construct and operate Red Dog, 90 miles northeast of Kotzebue and 52 miles east of its port on the Chukchi Sea.

“Overall, the goal of the agreement is to create lasting, skilled jobs for NANA shareholders, provide opportunities for NANA’s youth, and act as a catalyst for regional economic benefit without infringing upon the Inupiat culture and subsistence way of life,” Barr said. The agreement also called for the formation of a subsistence committee comprised of local hunters from the communities of Kivalina and Noatak. This committee provides valuable insight to the Red Dog Management Committee, which oversees the operations at the Red Dog Mine and consists of members representing NANA and TeckCominco.

“It’s a good thing that NANA and TeckCominco had a long-term investment horizon,” Barr said. She explained that Red Dog began with a $300 million capital investment, which grew over the years by another half a billion dollars. With interest, the amount grew to over $1 billion dollars. The sum of capital and operating profits and losses only turned positive in 2005 – 15 years after start-up.

“With today’s high commodity prices, it now looks like we made a brilliant investment, but Red Dog suffered years of enormous losses,” Barr said.

Even during those record losses, TeckCominco paid annual royalties to the NANA region. NANA has received total royalties of approximately $170 million since the mine began operation. Total payments to the NANA region, including payments to the Northwest Arctic Borough, shareholder salaries, NANA royalties and NANA contracts at the mine has been about a half billion dollars since start-up in 1989.

The Northwest Arctic Borough has collected $64 million in payments from the mine in lieu of taxes through 2006. The estimated payment for 2007 is $10.8 million. Red Dog is the sole taxpayer for the region as no property taxes are paid by any homeowner in the borough. Because of Red Dog, the borough is able to issue bonds to build new schools. The latest school under construction is in Noatak, where the existing school was at 250 percent over capacity.

Today, the mine provides 60 percent of the borough’s budget. Since the beginning of production, the mine has hired over 1,100 NANA shareholders and has paid out over $223 million in salaries to shareholders.

NANA’s royalty has a far-reaching impact across Alaska. Under the terms of the Native claims settlement act, 62 percent is distributed to the other Native village and regional corporations. Of the approximately $58.1 million NANA received this year, nearly $36 million will be distributed to other land-based regional corporations, which will in turn redistribute 50 percent
of the amount they receive to their village corporations.

Up until now, NANA royalty payments have been based on 4.5 percent of the net smelter value of the ore processed at the mine. However, the cash flow at the mine entered a new era in the 3rd quarter of 2007 when NANA began receiving 25 percent of the net proceeds from the mine. The royalty will increase by 5 percent with each fiveyear period to a maximum of 50 percent.

Based on current lead and zinc prices, NANA is estimating it may potentially receive over $6.5 billion in net proceeds payments over the projected life of Red Dog, currently out to 2031. Of that amount, over $4 billion will be paid out to other regional corporations. However, these revenues are at risk if the initiatives are approved by voters in the fall.

In a recent letter to Native corporation presidents, NANA President Marie Greene warned that if the proposed water initiatives become law, operations at Red Dog, as well as future developments to extend the mine’s life beyond 2012, face a very uncertain future.

“The initiative proponents argue that existing mines that already have all necessary permits, somehow would not be impacted,” Greene said. “However, the initiatives themselves fail to acknowledge that every mine constantly requires updates and modifications to permits over the life of the development.”

Greene warned that if the initiatives become law and Red Dog cannot secure new permits to continue operations, the $6.5 billion in royalties will “never materialize.” She said, “the initiatives absolutely put in jeopardy our ability to responsibly develop our natural resources.”

Red Dog & The Environment

The land surrounding Red Dog is rich in metals which results in naturally occurring Acid Rock Drainage (ARD). This results in rust colored staining of streams and rocks which is actually how the deposit was discovered. Baseline studies conducted in the 1980s prior to the mine’s development indicated these pre-existing water quality issues. The water quality upstream of the mine was and still remains highly degraded.

Prior to the mine’s development, Barr explained that frequent fish kills were recorded in waters downstream from the Red Dog deposit. Since development, the water quality has significantly improved, which resulted in fish extending their reach up into Red Dog Creek, which was previously devoid of aquatic life. In fact, a fish weir had to be installed immediately downstream of the mine’s discharge site to prevent fish from swimming upstream.

“It is critical to note that the water is safe to drink,” Barr said in reference to NANA’s commitment to preserving subsistence resources. “The animals, fish and berries are safe to eat. Numerous studies are conducted to ensure this. Red Dog mine could not operate if this weren’t true. While NANA is charged with working towards economic development and sustainability for our people, we continue to place the highest priority on protecting our subsistence culture.”

Barr also noted Red Dog is one of the few mines operating in America that has achieved ISO 14001 Certification. The certification is an international standard that defines the overall structure and requirements of an environmental management system. The standard is based on compliance with regulations, prevention of pollution and continual improvement.

Barr bristles at the backers of the initiatives who claim they are about ‘clean water.’ She noted the initiatives set the bar at a level that cannot be reached, making it impossible for a large mine to be developed or to operate in Alaska.

The initiatives prohibit any large scale metallic mining operation that exceeds 640 acres, including roads, ports, fuel storage facilities and other infrastructure. Red Dog covers over 1,800 acres.

Barr noted the initiatives would prohibit the release of water containing any amount of metals or chemicals, even if the water is cleaner than tap water and meets stringent state water quality standards.

“What’s the bottom line with these initiatives?” Barr asked. “An end to mining as we know it. They would shut down existing mines when they apply for new permits, which they do on a regular basis, and prohibit future mines,” Barr said. “The initiative’s language prohibits the operation of a metal mine if it creates waste rock or tailings. That’s an impossible standard. It prohibits any water discharge – even if those discharges meet the state’s already stringent standards,” Barr continued.

“These initiatives will rob communities, Alaskans and local governments of significant sources of revenues,” Barr added.

Over the long term, the Alaska Department of Natural Resources estimates the initiatives could result in a loss of over $10 billion in revenues to the state. In addition, local governments, which currently collect over $14 million a year from mining, would lose a critical tax base. The estimate is based on impacts the initiatives could have on existing mines in operation today across Alaska and do not include revenue streams from potential future mines.

“We also lose billions more in additional revenue to Alaskan businesses that support the mining industry,” Barr said, as well as over 3,000 jobs for mining employees and their families. “There are hundreds of Alaskans attending trade schools or colleges with the ultimate goal of gainful employment at one of the existing mines in Alaska today,” Barr said.

“These are initiatives that Alaska cannot afford.” Barr concluded.