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Does Anglo American's departure doom the Pebble prospect?

Alex DeMarban

Anglo American's pullout from Pebble is hardly a death knell for the promising but beleaguered mineral prospect in Southwest Alaska. But the move increases the chance of an important shift in the project, one that could lead to a less environmentally risky design than the massive, open-pit option that has sparked widespread opposition.

That's the opinion, anyway, of Paul Metz, a longtime mineral economics expert from the University of Alaska Fairbanks.

With Anglo departing, Rio Tinto is now the only major mining company invested in the project. Rio Tinto, headquartered in London, holds 19.8 percent of Northern Dynasty Minerals, the junior mining company from Canada that has long led efforts to develop the prospect.

Rio Tinto has said it would support an underground mine at Pebble, while rejecting the open-pit approach that many believe will play a large part of Northern Dynasty's eventual plans.

The Pebble Partnership, once owned half by Anglo American and half by Northern Dynasty, is now working on a transition plan as Anglo backs out, as was publicly announced earlier this week, an official with Pebble said.

The partnership has not yet submitted a mine plan for permitting to state and federal officials. That was expected to happen by the end of this year, and the state was expecting to see an open-pit proposal based on past documents submitted by the companies, a state official said.

Northern Dynasty, whose only asset is the copper, gold and molybdenum prospect that could be worth $300 billion, will need a company the size of Rio Tinto to get the project into development, said Metz.

With Rio Tinto now the sole major partner -- over the years Teck Cominco, Mitsubishi Corp. and now Anglo have pulled out -- it's possible that Rio Tinto will play a more prominent role.

If so, and if it pursues the underground approach, that could improve the public perception of the mine, Metz said.

Anglo did not cite public resistance as the reason it was backing out. Instead, it said it wanted to focus on lower-risk prospects. But opposition from environmental groups, commercial fishermen, politicians and others -- not to mention a potential shutdown by the Environmental Protection Agency -- increased the project's risks. Observers expected that numerous lawsuits would be filed at every step of the permitting process, delaying efforts for years.

Large-scale underground operations are environmentally safer than open-pit mines, though they're costlier, said Metz. Because extraction takes place beneath the ground, they result in far less surface disturbance and in part because of that, less chance of toxic runoff, Metz said.

That's important because the prospect is located near the headwaters of tributaries of two of the largest rivers -- the Kvichak and Nushagak -- draining into Bristol Bay. Many fear open-pit mining in particular will devastate the bay's valuable wild salmon fishery, in part by destroying salmon spawning habitat.

The environmental lobby believes the Pebble prospect will be an open-pit project no matter who is involved, in part because of the huge capital costs that must be paid up front to build infrastructure in the remote region, said Tim Bristol, Alaska program director for Trout Unlimited.

"We believe they're not going to stop with a smaller footprint," said Bristol. "Once they're into the permitting process and they start operating, they'll apply tremendous pressure to expand the size of the operation."

He also said it's not certain that large-scale underground mining would be less environmentally hazardous than an open-pit operation, given that the mining would involve the destruction of large areas underground, producing toxins that could still find their way to spawning areas because of the region's complicated interplay of ground water and surface water.

Jennifer Russo, a spokeswoman with Rio Tinto, said in an email that the company "will only participate in the project if it can be constructed, operated and closed in a manner that preserves the water, salmon, fisheries, wildlife and the environment. The project must also be developed in accordance with our strict standards for health, safety, environmental protection, cultural heritage, and community relations."

A growing need for copper

Even if Rio Tinto doesn't play a larger role, another company might. Some mining observers say the prospect's huge potential value will attract other partners sooner or later.

And its value should rise. It's been some 20 years since a large-scale copper mine was developed, and copper reserves are being depleted while demand grows in Asian economies, Metz said.   

"We'll probably see the price of copper rise here as more shortages develop without the addition of new production capacity," Metz said.

Northern Dynasty has already begun talking with large mining companies about possible partnerships, said Sean Magee, the company's vice president of public affairs. Northern Dynasty has no debt and enough capital -- more than $22 million -- to allow it to advance into the permitting phase.

Whether it will submit a development plan by the end of this year, as originally planned, and begin seeking more than 60 permits from state and federal agencies -- is uncertain.

"We're still negotiating final terms with Anglo American as to their departure and we're in the process of evaluating all of Pebble's programs and timelines," Magee said.

Northern Dynasty previously did fine without having a major mining company as a partner, between 2001 and 2006. During that stretch, the company's exploration work significantly increased the size and value of the prospect, attracting Anglo.

Northern Dynasty will need outside investment in the long-term, and those opportunities exist, said Magee.

"There's no doubt we'll look for additional financing to support the project," he said. "There's always been a lot of major mining company interest in this project because of the significance of the resource."

Rajive Ganguli, the chair of UAF's mining and geological engineering school, said the retreat of Anglo presents challenges, "but you got to figure, $300 billion in the ground is not going away. The project could be delayed for 10 years, 50 years, but the point is now we know about the copper, so someone will always be looking to develop it."

Steve Borell, the retired head of the Alaska Miners Association, said the coming and going of major mining companies is typical in the pre-development phase of a big prospect. In fact, projects the size of Pebble commonly have three to six big companies cycling through before minerals are produced, he said.

In the near-term, Anglo American's pullout will mean less financing for additional drilling and analysis, which will mean fewer jobs for drillers from the Southwest region and others who have been hired to support the project, he said.  

But this is not the end of the project. "This is arguably the second largest copper deposit in the world. The value and opportunity for Alaska and that region is huge," Borell said. "America cannot stand by and import everything from everyone else. We need to produce it ourselves, and the sad thing is we can do that better than anyone else."

Deantha Crockett, the current executive director of the miners association, said it's a challenging time for projects like Pebble's because the investment dollars in the mining world have shrunk.

"Right now is not a cash-heavy time in the mining industry, so higher risk projects like Pebble aren't being pursued," she said.

The pullout should be a signal for Alaska to ponder whether opposition to Pebble hurts the state's investment climate.  

"We as Alaskans should be concerned about that," she said. "We know there are hundreds of jobs that will be lost if Pebble were to not move forward," and even more during peak hiring periods.

In fact, a paper by University of Alaska economics professor Scott Goldsmith notes that a recent study points out the potential value of the mine to the state. The study was done by IHS Inc. and was prepared for the Pebble Partnership.  

"The annual value of output could range between $1.5 and $3 billion. Alaska employment could average 4,725 during the construction phase, 2,890 during initial production, and 2,750 during potential subsequent development," Goldsmith writes, referring to information from the study. 

State and local governments would also benefit from increased revenues generated by a variety of taxes, as well as the royalty payments to the state, according to the report. 

Contact Alex DeMarban at alex(at)alaskadispatch.com

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