Those of us watch who our state's economy got a rude awakening last week with news that a preliminary feasibility study for the Livengood gold project north of Fairbanks had results that were pretty dismal.
Livengood, on the Elliot Highway 70 miles north of the Fairbanks, is a substantial gold project that could strengthen the Interior economy for years if built. Many of us who follow the project see it as a twin of the very successful Fort Knox gold mine, on the Steese Highway northeast of Fairbanks.
Livengood seems a perfect follow-on to Fort Knox, too, as that mine winds down. Both are big surface mines that would require similar equipment, machinery and labor skills. What many hope is that as Fort Knox is depleted, Livengood can take its place. Fort Knox mine workers could just drive up the Elliot Highway and go to work.
It's not that simple, of course. International Tower Hills Mines, the company developing Livengood, has always warned that the project is not a sure bet. We heard them, but perhaps not clearly enough.
The feasibility study found that the mine would require a gold price in the range of $1,500 an ounce to be profitable. That's not only higher than current gold prices but well above what mining companies want as a safety-net break-even price, because gold prices cycle and they can drop sharply.
What surprised us about the feasibility study is the high break-even price despite some apparent big advantages for a large gold mine at Livengood. The gold deposit has a large resource base, is on a paved, all-weather highway and is not distant from a sizeable community, Fairbanks.
However, the study showed the project has challenges. Power supply is one. A 50-mile electrical transmission line would be needed. Housing is another. Unlike Fort Knox, Livengood is too far for workers to commute, so a big permanent camp is needed. There are, no doubt, other factors, too.
Things are not all lost for Livengood, however. International Tower Hills will now go back to the drawing board to see what can be done to lower capital costs.
We have a lot of confidence in the company's Alaska managers, who include former state Natural Resources Commissioner Tom Irwin, a mining veteran who managed development of the Fort Knox mine, and Karl Hanneman, who led the development of the Pogo Mine east of Fairbanks, a successful underground gold mine.
If anyone can make this project work, those guys can.
This is an important project for Fairbanks, and for the state. Mining is a good industry. Mines are good taxpayers where they are located in municipalities and they pay state taxes and royalties too, even if not on the scale of oil and gas companies.
They are good employers, though. Jobs in producing mines pay more than $90,000 a year on average, and mines typically have a good Alaska-hire record. Large surface (open pit) mines typically involve a lot of earth-moving equipment and skills that many Alaskans already have or can quickly train for.
The Usibelli coal mine at Healy, Fort Knox near Fairbanks and the Red Dog lead and zinc mine north of Kotzebue have high Alaska resident counts in their workforce, near total in the case of Usibelli and Fort Knox.
Underground mines can have a higher non-resident count because these require very high levels of skill to ensure safety below ground. These operators, such as at the Pogo mine near Delta and Greens Creek, and Kensington mines near Juneau, brought in a core of skilled miners at startup and then trained a resident workforce.
There are solid business reasons for training locals, beyond public relations. The companies find they have high turnover rates with non-resident recruits, which costs a bundle. Training locals cuts turnover sharply, and reduces costs.
We have high hopes for Livengood and several other mines still in advanced exploration and development, such as Donlin Gold on the Kuskokwim River and the Niblack and Bokan Mountain projects near Ketchikan. And Pebble, too.
All these projects face challenges, but they present big opportunities for strengthening and diversifying our economy. But as the Livengood study shows, there will be bumps in the road.
Tim Bradner writes on business and economics topics for Alaska publications. From 1970 to 1984, he worked for BP, a major North Slope oil company. Some of that time was spent as a lobbyist for the company in Juneau.