Fort Knox offers possible preview of Pebble Mine

Posted: Tuesday, April 05, 2005

As Northern Dynasty Minerals Ltd. continues planning for what would be the largest open-pit mine in North America, officials with the Alaska Division of Mining, Land and Water have a wealth of information from which to draw as they consider the extent and limits of NDM's future mining permits.

Though significantly smaller than the NDM's Pebble project northwest of Iliamna, the Fort Knox Gold Mine, listed as a "low-grade gold" deposit 25 miles northeast of Fairbanks offers a useful comparison and a gauge of the possible costs associated with bonding against environmental damage.

That mine began operating in 1994, and current estimates say it will continue producing until at least 2012. As of 2002, it had produced 2.7 million ounces of gold from 99 million tons of ore. At that time, some 2.8 million ounces more were believed left to be extracted.

A detailed review of the mine was compiled in 2003 by the Center for Science in Public Participation (www.csp2.org), using data available from the mine's owner, Fairbanks Gold Mining Inc., a subsidiary of the Toronto-based Kinross Gold Corp. The center has reviewed mining operations nationwide.

Data shows the Fort Knox Mine site includes more than 7,600 acres, about three-quarters of it on state land and roughly a quarter on Alaska Mental Health Trust land, with a small portion (121 acres) on private land.

The mine operates at a rate of 35,000 to 50,000 tons per day from a 332-acre open pit, approximately a half-mile wide and a mile long. A tailing storage facility at Fort Knox covers 1,147 acres, or about 1.8 square miles.

NDM's Pebble Mine would operate at a rate of 100,000 to 200,000 tons per day from a pit of roughly 2 square miles and fill a tailings facility spread over another 14 square miles, more than seven times that of Fort Knox. NDM's mine could last from 30 to 60 years, depending on rate of production.

A satellite to the Fort Knox Mine known as True North operates about 11 miles northwest of Fort Knox and has produced 228,000 ounces of gold from 5.7 million tons of ore. The 1.5-mile-long mine is expected to deplete its reserves this year. Raw ore is transported along a haul road in 85-ton trucks with trailers from True North to Fort Knox, where it is processed.

Total reclamation costs for the Fort Knox operation have been estimated (for state permit purposes) at $12.1 million. The Alaska Department of Natural Resources currently holds a $2.15 million bond to cover the cost of mine-site reclamation and closure put up by the mining company.

Likewise, the Alaska Department of Environmental Conservation holds a $9.3 million bond to cover the cost of water treatment, monitoring and maintenance of the tailings containment dam, tailings impoundment and surrounding water quality. DNR also holds a post-reclamation bond of $714,536 for long-term maintenance. (Current bonding for True North amounts to $2.5 million, making the bonding for the entire Fort Knox complex about $14.6 million.)

Among the concerns raised by vocal critics of NDM's plans is the level of financial responsibility NDM would face during operations and after the mine is closed. How much bonds similar to those posted by Fort Knox would set NDM back has yet to be determined, but according to a financial assurance review by the Center for Science in Public Participation, the Fort Knox bonds are not large enough.

Documented examples of devastating and costly environmental damage left behind by bankrupt mining companies are not hard to find, and the costs incurred by states that must take over cleanup operations often are significantly higher — sometimes 10 to 100 times higher — than initial estimates, the center report said.

The Fort Knox Mine financial assurance of $12.1 million "may not be adequate to cover the costs of reclamation and closure incurred when these tasks are performed by a regulatory agency," the center said.

The center's estimates suggest costs might grow from between 13 percent to as much as 291 percent when assuming water quality standards were met after only five years. They could jump to 759 percent over 50 years and as high as 1,143 percent if water treatment were needed for a century.

The worst-case scenario for Fort Knox: Potential increases could drive costs to as high as $148 million, the center warned.

The much larger Pebble Mine would hold the potential of far greater "worst-case" costs if assurances that it will not pollute the Bristol Bay Watershed are not met.

To date, Fort Knox's operations have not only been successful financially, but benign environmentally.

According to Ed Fogel, mining coordinator for the state of Alaska, the Fort Knox operation has not been cited for environmental problems. As far as the center's findings are concerned, Fogel said one could develop any kind of "worst-case" scenarios they might want. The proof, however, would be on the ground.

Bonds held by the state for Fort Knox are adequate, Fogel said. They also are adjustable. Every five years, a third party conducts an environmental audit, which includes review of the adequacy of bond levels, he said.

At Pebble, bonding levels will depend on several factors, and reclamation itself is relatively straightforward and represents but a small part of the bonding pie, Fogel said.

"Where costs go through the roof is water treatment," he said.

How much of that would be necessary will depend on the geochemistry of the ore, tailings and waste rock, and the regional geology of the Pebble deposit, subjects currently under study by NDM.



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