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Pebble mine could be highly profitable, company study says

Elizabeth Bluemink

Sharp debate erupted Wednesday over a new report that shows that developing the controversial Pebble copper and gold deposit in Southwest Alaska could be very profitable for its owners.

The economic assessment was funded by Northern Dynasty Minerals, the smaller of two mining firms studying Pebble.

Northern Dynasty said the report shows 45 years of open-pit mining at Pebble could generate an average annual return on investment, called the internal rate of return, of 14.2 percent before taxes and pay back the estimated $4.7 billion cost of building the mine in roughly six years.

That's the sort of payback that would make a mining company decide to go mining, said Phil St. George, an Alaska geologist who is credited for discovering the Pebble deposit decades ago.

For comparison, one of the richest undeveloped copper-gold projects in the world, Oyu Tolgoi in Mongolia, has an estimated internal rate of return of 17.6 percent before taxes.

"It is good news for the people who want to see a mine built out there," St. George said.

Northern Dynasty's partner, global mining giant Anglo American, wasn't happy about its partner's announcement early Wednesday afternoon.

Later that day, Anglo called the report premature. The report reflects only the views of Northern Dynasty and its experts and is too early to draw conclusions about Pebble's economics or final design, Anglo said.

Pebble critics said the report is another reason for Alaskans to ignore mining companies' requests that they wait to pass judgment on the project until the Pebble studies are finalized.

"It's kind of disingenuous of the mining industry to say hold off, there's nothing to comment on," said Brian Kraft, who works with conservation groups opposed to Pebble and owns two sportfishing lodges in the region.

"It states (in the report) they feel this is a permittable project. How do they know that? What gives them that idea? I thought there were a bunch of (studies) to be done," Kraft said.

Pebble is controversial due to its massive size and location in the headwaters of two of the five major salmon-rich rivers that feed Bristol Bay's world-class fisheries. After pressure from a number of tribal governments in the region, and from fishermen and conservationists, the federal Environmental Protection Agency recently announced it will review the consequences of major industrial development, such as Pebble, in those river drainages.

Northern Dynasty and Anglo are still working on a feasibility study of the mine and don't plan to begin applying for development permits until later this year or next year.

OPEN-PIT MINING

The main scenario given in Northern Dynasty's report involves producing 31 billion pounds of copper, 30 million ounces of gold, 1.4 billion pounds of molybdenum and various other metals. But that represents only 32 percent of the actual mineral resource at Pebble, according to the firm, based in Vancouver, British Columbia.

The Northern Dynasty report, by Toronto-based Wardrop Engineering Inc., did not review the economics of an underground mine, something that the mining companies involved have been discussing for several years.

A Northern Dynasty spokesman said Wednesday the report is just a third-party view of how Pebble could be developed and how the economics pencil out.

"There will be a whole different analysis when the Pebble Partnership (Northern Dynasty and Anglo's joint venture) puts together its feasibility study," said the spokesman, Sean Magee. That study isn't expected until 2012.

The Northern Dynasty report has not yet been published in its entirety but the key findings were shared in a press release sent to the company's investors on Wednesday. The report said Pebble's potential pre-tax value to Northern Dynasty -- as a 50 percent stakeholder in the project -- was $8.3 billion in extra profits -- called "net present value" -- at current metal prices. Overall, the project as a whole is worth $15.7 billion in extra profits at current metal prices.

"From our perspective, the assessment confirms it is a technically and economically robust project," Magee said.

NEW DETAILS?

If Pebble is developed, it would be the largest mine in Alaska.

The report sheds some new light on how a mine could be developed, and how other mineralized areas on the mining claims that contain silver and other metals could be extracted decades later.

The report presumed open-pit mining for 25 years and approval of additional mine permits that could extend the mine life to 45 years or longer, according to Northern Dynasty.

The report estimated that building Pebble would cost $4.7 billion over four years, with a peak labor force of 2,080. Mine employment would average 1,120 annually over the first 25 years.

The report assumed that Pebble developers would enter into "strategic partnerships" to develop, finance and operate some major components of the project, including a deepwater port, power plant and road corridor. The report didn't spell out with whom the Pebble developers would seek partnerships.

The report also dangled the possibility of developing other mineral deposits on the Pebble claims in the future.

"Numerous compelling exploration targets exist within the 186 square mile Pebble property claim boundary," according to Northern Dynasty's summary of the report's findings. These included "numerous zones" of copper, gold, molybdenum and silver, according to Northern Dynasty.

Kraft, the Pebble opponent, said this adds to the fears of people in the Bristol Bay region who are worried about the creation of a major mining district in their watershed.

"Our state needs to look at (Pebble) in its entirety and assess the appropriateness" of developing it and additional mines in the area, he said.

Reach Elizabeth Bluemink at ebluemink@adn.com or 257-4317.


By ELIZABETH BLUEMINK
ebluemink@adn.com