Estimated cost to build Pebble pushes up to $6 billion

AND THAT'S CHEAP: Proposed North Slope gas pipeline could hit as much as $40 billion.

November 1, 2008 

The estimated cost of building the massive and controversial Pebble copper and gold mine has hit $6 billion -- putting it on the short list of Alaska's most expensive projects, if the project goes forward.

Pebble's cost is still dwarfed by a duo of the state's biggest oil and gas projects -- the $8 billion trans-Alaska oil pipeline in the mid-1970s -- equivalent to about $30 billion today -- and the proposed North Slope gas pipeline, estimated to cost as much as $40 billion.

But it would be far more expensive than any other Alaska mine ever built.

Pebble also would have a bigger price tag than the proposed $3.3 billion, 700-mile bullet pipeline to carry natural gas from the Brooks Range foothills to Railbelt cities.

It's still not clear whether Pebble makes financial sense to develop, according to mining industry officials.

The copper and gold deposit is vast -- one of the world's richest -- but the ore is mainly low grade, meaning that most of the rock dug up would be waste material.

Still, like the development price tag, the potential value of the copper and gold is breathtaking -- hundreds of billions of dollars at today's prices. That has kept the two mining companies with rights to Pebble, global giant Anglo American and small Canadian explorer Northern Dynasty Minerals, busy assessing the site, including spending $25 million this year drilling test holes and studying the environment, among other activities.

Pebble not only faces complex technical challenges but big opposition from many fishing groups, environmentalists, sport lodge owners as well as some Native organizations and villages in Southwest Alaska who are worried that Pebble will harm the region's world-class salmon fisheries.

Pebble is located 15 miles from Nondalton in the headwaters of two of the five rivers that feed Bristol Bay's salmon runs. The bay lays claim to the world's biggest sockeye fishery and its tributaries a top destination for sportfishermen seeking rainbow trout.

The big technical challenges for Pebble include dealing safely with water discharges at the mine site, storing massive amounts of rock waste and finding an energy source to power the mine.

The amount of power needed at Pebble is 600 to 700 megawatts, roughly equivalent to the amount of power used in Anchorage, according to company officials.

The project's opponents have vowed to stop the mine, if possible.

COSTS COULD CHANGE

The $6 billion estimate to build Pebble probably will be updated with a different number next year.

The Pebble Partnership, the outfit Anglo and Northern Dynasty formed to advance the project, has not yet finished a preliminary design for the mine.

"We're well short of going to financing at this point," said John Shively, the Pebble Partnership's president.

The partnership plans to finish the preliminary design by the middle of next year and seek state and federal permission to build Pebble by late 2009 or early 2010, he said.

History shows that Alaska's biggest developments tend to get socked by big cost increases.

The trans-Alaska oil pipeline system's cost increased from $1 billion in 1968 to $8 billion at its completion in 1977, prompting a congressional investigation.

Much like Pebble's current construction estimate, the original cost for the trans-Alaska oil pipeline was based on "limited information available at the time," and before the final design and engineering studies had been published, according to a U.S. General Accountability Office study published in 1978.

The state's biggest gold mine, Pogo, near Delta Junction, also ended up costing quite a bit more than expected.

In 2004, when Pogo construction began, the underground mine's cost was pegged at $280 million. But the final price tag ended up at about $360 million, according to company officials.

The main reason: The rising cost of steel and fuel, said Karl Hanneman, director of corporate affairs for Teck Cominco, the company that operates Pogo.

TUMBLING PRICES

Until now, the Pebble Partnership had estimated the cost to build Pebble between $3 billion and $5 billion.

Why the increase to $6 billion?

"Everything is more expensive," Shively said.

"Look at what happened to the cost of the (North Slope) gas line. It used to be $12 (billion)," he said.

Pebble's new estimate is not precise -- the company has not yet decided how to power the mine, for example -- but it takes into account the increased cost of raw materials and equipment, he said.

Prices for some of those construction materials are now falling due to the slowdown in the global economy.

But prices haven't dropped below the level they were at several years ago when the global commodity boom started, said John MacKinnon, executive director of the Associated General Contractors of Alaska.

Also, gold and copper prices sank last month.

The crux of whether it makes sense to pour billions into building a mine is going to depend on what happens to metals prices, said Steve Borell, executive director of the Alaska Miners Association.


Find Elizabeth Bluemink online at adn.com/contact/ebluemink or call 257-4317.

Anchorage Daily News is pleased to provide this opportunity to share information, experiences and observations about what's in the news. Some of the comments may be reprinted elsewhere in the site or in the newspaper. We encourage lively, open debate on the issues of the day, and ask that you refrain from profanity, hate speech, personal comments and remarks that are off point. Thank you for taking the time to offer your thoughts.

Commenting FAQs | Terms of Service