Facing legal, political and regulatory challenges before the permitting process has even begun, the Hunter Dickinson Group’s Northern Dynasty Minerals (NDM-T, NAK-N, NAK-X) appears to be swimming against the current at its giant Pebble copper-gold-molybdenum project in southwest Alaska.
The proposed open-pit mine lies within a region that produces half the world’s harvest of sockeye salmon and has become a focal point for intense public debate surrounding Alaska’s resource development.
Already feeling the backlash from environmentalists and commercial fishing groups, Northern Dynasty and equal partner Anglo American (AAUKY-Q) await three related developments: the results of a preliminary scientific review by the U.S. Environmental Protection Agency to stop proposed large-scale development activities in Alaska’s Bristol Bay watershed; a constitutional challenge to a citizen initiative narrowly passed by voters in the Lake and Peninsula Borough prohibiting permits for large resource extraction activities in the area; and proposed measures filed in January by Alaskan lawmakers that would require legislative approval for large-scale mining projects.
At the centre of the controversy is a traditional argument over which is more important, the economy or the environment, with Pebble billed to become the largest open-pit mine in North America producing some 678 million lbs. copper, 673,000 oz. gold and 32 million lbs. molybdenum each year, should the project go ahead.
According to a preliminary economic assessment released last year, average cash operating costs at the mine after by-product credits would be negative US11¢ per lb. copper, assuming prices of US$1,050 per oz. gold, US$15 per oz. silver and US$13.50 per lb. moly.
The base-case mine life is 45 years, with a possible extension to 78 years or more.
Working as the Pebble Partnership, Northern Dynasty and Anglo say almost US$5 billion would be injected into the Alaskan economy while the mine is built, creating 2,000 jobs during construction and 1,120 after that. It would also result in significant annual payments to state and local governments, benefits for local communities as a result of supply and service contracts and new social and economic infrastructure for southwest Alaska.
Opponents of the project argue the added risk to the surrounding environment would be too great, with tailing impoundments near important watersheds running several miles long and up to 740 feet high. Even if no leaks or acidic waste discharge were to occur during the project’s assumed 45- to 78-year life, the integrity of the tailings walls would have to last long afterward, containing up to 10 billion tonnes of potentially sulphuric-acid-generating waste rock and water in perpetuity.
The Pebble pit would be roughly two miles wide and 500 metres deep, and be located at the headwaters of the Upper Talarik Creek drainage and the South Fork Kiktuli River drainage, and adjacent to the headwaters of the North Fork Koktuli River drainage.
Environmental proponents trying to safeguard the area argue these are important salmon-spawning grounds that are part of a wider network that extends into Lake Iliamna, the largest sockeye spawning site in the world, and eventually into Bristol Bay, about 120 miles away.
They say not only would the mine mean outright destruction of the spawning grounds within the mine complex, but also the disruption of spawning grounds along the supporting 50-mile transportation corridor as a result of bridges crossing “scores of streams,” the National Geographic Magazine’s Edwin Dobb writes. A largely untouched area would instead be home to miles of tailings facilities, a huge open pit, roads and other access infrastructure, power facilities, a mill, a pipeline for transporting copper-gold slurry and possibly natural gas, ore stockpiles, warehousing, administrative facilities and worker housing.
As part of its work to safely develop the project, the Pebble Partnership has spent seven years and US$150 million compiling an environmental baseline study that it says characterizes the “existing physical, biological and social conditions in the project area.” It does not attempt to propose environmental mitigation techniques, which will be part of a different, later document.
The study contains more than 27,000 pages of data and interpretation and looks at the current state of water quality, wetlands, fish, wildlife and other important environmental factors the Pebble mine might affect. In all, the report covers 108,520 sq. km of the Bristol Bay drainage basin. Northern Dynasty and Anglo say the report was compiled by more than 40 independent, third-party research firms, consultants and scientific laboratories. Critics such as Tim Bristol of Trout Unlimited Alaska, however, have tried to discredit the findings, claiming the information was still “bought and paid for by the Pebble Limited Partnership,” as well as not being peer reviewed or easily replicable.
The study looked at the present environmental conditions of various areas that might be affected by the mine, including the mine study area, the transportation corridor, Bristol Bay and Cook Inlet. The mine study area encompasses the area immediately surrounding the proposed mine that is most likely to be affected, and includes the following watersheds or drainages: North Fork Koktuli River (NFK), South Fork Koktuli River (SFK), Upper Talarik Creek (UT) and 29 miles of the upper Koktuli River (KR) mainstem.
The study notes the first set of rivers, NFK and SFK, are “relatively small” and have mainstem lengths of 36 miles and 40 miles, respectively.
These rivers in turn merge to form the KR, which flows for another 39 miles before entering the Mulchatna River.
From there, the Mulchatna flows 44 miles to the Nushagak River, which carries on for 109 miles before discharging into Bristol Bay.
As Pebble straddles two separate drainage systems, the UT flows in a different direction. It runs for 39 miles before draining into Iliamna Lake, which ultimately also discharges into Bristol Bay via the Kvichak River.
Although well connected, the water systems in the mine study area “each represent approximately 0.3% of the entire Bristol Bay drainage basin,” or 1% in total, according to the study. The report notes the principal NFK, SFK and UT streams contain at least 11 to 14 different fish species, including Chinook, sockeye and chum salmon.
The mine study area hosts 25 different types of wildlife habitat, with half of the area comprising upland and alpine moist dwarf scrub. Forty mammal species are known or strongly suspected to occur there. They include the wolf, red fox, river otter, wolverine, brown bear, black bear, moose, caribou, arctic ground squirrel, beaver, red-backed vole and others. Brown bears were common in the mine study area, the study reports, with density estimates of 47.7 to 58.3 brown bears per 1,000 sq. km. A moose population survey in the mine study area in April 2010 estimated 33 moose in the 1,178-sq.-km survey area.
Researchers also observed 37 species of birds, including “hundreds of swans,” “thousands of ducks,” loons and gulls recorded as confirmed breeders. Water birds such as geese, grebes, cormorants, cranes and jaegers were there, as well as 73 nests of raptor species such as bald and golden eagles, great horned owls, gyrfalcons and rough-legged hawks.
A similar number of mammal and bird species were recorded in the transportation corridor study area, while Iliamna Lake is also home to as many as 350 harbor seals. The study points out “no threatened or endangered species . . . is known to occur in the Bristol Bay drainage study areas.” Although the bald eagle is a federally protected species, the report says in Alaska, “bald eagles are abundant and are not considered of conservation concern.” Twenty-two bird species and two mammal species are considered of conservation concern for Alaska, however.
The EBD reports 20 communities use the land in the overall Bristol Bay drainage area for subsistence purposes. In 10 communities, households reported harvesting an average of between 6.7 and 15.8 species, and were worried about possible wildlife contamination from the mine should it go ahead, as well as social effects related to noise and an influx of outsiders to the region.
The report says current viewers of the landscapes “comprise residents of the communities in the study areas and tourists and recreationists . . . the most common recreational uses in the plan are sport fishing, big-game hunting, camping, river and water sports, wildlife viewing and nature photography.” The mine study area accounted for 7.4% of the catch from commercial freshwater sport fishing in the Bristol Bay area, according to the study.
A common worry of environmentalists is that a large earthquake could one day damage Pebble’s tailings dams, putting the vast water networks of Bristol Bay at risk of acid mine drainage. The study characterizes Alaska as “the most seismically active state in the U.S.” In 1964, Alaska experienced the second-largest earthquake recorded worldwide.
The closest fault system to the study area is the Lake Clark-Castle Mountain fault 15 miles away, but the U.S. Geological Survey now classifies it as inactive. The study notes, “A detailed study of the surficial geology and geomorphology at the study area did not demonstrate any surficial evidence of fault activity in the vicinity of the study area, which is located on outcrops that likely provide resistance to fracturing of the earth’s crust.”
Although the rigour and work that has gone into the Pebble EBD is considerable, the document has done little to pacify the mining project’s critics whose arguments and views are by now firmly entrenched.
It will soon be 10 years since Northern Dynasty took control of the Pebble project from Teck Cominco, now Teck Resources (TCK-T, TCK-N). Northern Dynasty and Anglo have spent over US$500 million combined advancing the project, and hope to finally apply for mining permits by the end of the year. A prefeasibility study is also expected before then.
Shares of Northern Dynasty last traded for $7.20 on Feb. 24, slightly up from their 52-week low of $5.16 but well down from an all-time high of $21.50 in February 2011.
Anglo American’s ADRs last traded at US$21.41 in a 52-week trading range of US$15.83 and US$27.53.
Within the last month, analysts at JPMorgan, Citigroup and Barclays Capital separately downgraded the company to “neutral” or “equal weight.”