Pebble Mine assessment shows plenty of potential

Posted: Thursday, November 04, 2004

A preliminary assessment of the proposed Pebble Mine project near Lake Iliamna indicates excellent potential for a long-life mine with large-scale, low-cost metal production, according to a press release issued Tuesday.

The assessment, based on data through the end of last year, indicates the Pebble gold-copper-molybdenum porphyry deposit developed by conventional, large-scale, open-pit mining methods, would be successful at various production rates.

At the lowest of three production scenarios (processing 100,000 tons of material per day), the mine might produce an estimated annual average of 256 million pounds of copper, 365,000 ounces of gold, 8 million pounds of molybdenum and 1.4 million ounces of silver during the first 10 years of a 62-year mine life, according to Northern Dynasty Minerals Ltd.

At the largest scale studied (200,000 tons per day), production would see an annual average of 470 million pounds of copper, 674,000 ounces of gold, 15 million pounds of molybdenum and 2.5 million ounces of silver during the first 10 years of a 31-year mine life, the company said.

The preliminary assessment estimated the project's construction capital costs, sustaining capital, operating costs and offsite charges (such as concentrate transportation and smelter-refining charges) as well as revenues all using 2004 U.S. dollars.

Capital costs ranged from $1 billion to $1.5 billion, depending on the production scenario. Sustaining capital estimates ranged from $276 million to $197 million, while operating costs ranged from $5.06 per ton at 100,000 tons-per-day to $4.36 per ton milled at 200,000 tons-per-day.

The press release issued Tuesday by Ronald Thiessen, president and CEO of Northern Dynasty Minerals Ltd., cautioned that the preliminary analysis was no assurance that the operating and financial projections would be realized.

Nevertheless, the analysis suggested the Pebble Mine project could generate an "internal rate of return" between 15.3 percent and 20.3 percent, and between $1.047 billion and $2.091 billion at long-term average metal prices. Those figures jump up when figured at recent high metal prices.

Northern Dynasty said it was continuing ongoing work programs, including the comprehensive collection of engineering, environmental and socioeconomic data it needs to produce a "Bankable Feasibility Study" in 2005, and to fulfill requirements for an Environmental Impact Statement, as well as state and federal permits.

A six-rig drill program begun in April at the site is defining a significant portion of the Pebble deposit's inferred mineral resources essentially determining the deposit's breadth and depth. Other drilling has tested sites for impounding tailings, surface facilities and open pit mine design.

Many infrastructure requirements of the proposed mine already are defined. For instance, the mine will require construction of an 86-mile road connecting the project to tidewater at Cook Inlet and a deep port facility. The preliminary assessment assumed that copper concentrate would be transported to a port facility on tidewater through a concentrate pipeline. Molybdenum sulfide concentrate would be recovered, packaged and shipped to market separately.

The company and the state are negotiating terms of a memorandum of understanding but already are working together. For instance, Alaska's Southwest Regional Transportation Plan includes construction of transportation facilities from Cook Inlet to the town of Iliamna 17 miles from the project. According to Northern Dynasty, the company and the state are discussing ways to integrate the state's plan with the project's development schedule.

The state identified a preferred road corridor and port option in a recent transportation corridor analysis. Prefeasibility level engineering studies for a road and port have been commissioned by the state. Results are expected early next year.

Also, options for a supply of electricity to the project and neighboring villages are being studied, including a 41-mile submarine connection to the Kenai Peninsula, an overland route on the west side of the inlet, or development of new generation facilities close to the mine.

Shawn Wallace, manager of the investor relations department for Hunter Dickinson Inc. (HDI), a kind of umbrella group for eight mining companies including Northern Dynasty that own HDI, said the preliminary figures show favorable prospects for mine development and success.

"Work since then (December of last year) do nothing but augment that scenario," Wallace said.

The preliminary study provides a template into which better data may be plugged in the coming months leading to more exact estimates of numerous parameters that go into a decision to proceed, he said.

Wallace said, however, that he has been engaged in several such projects and has never met with the kind of good news and cooperation Northern Dynasty is experiencing in Alaska.

"None have ever come together like this one," he said.

A lot of work goes into collecting the necessary data, he said, but the prospects keep getting brighter.

"Every time we ask a question, we get the answer we want to hear," he said. "It seems like things are aligning."

Company officials on the ground in Alaska are saying they are pleased with the state's "supportive and realistic" level of cooperation, Wallace said.

While many residents of the Kenai Peninsula, as well as local government officials, are keen to enjoy at least peripheral economic benefit from the project across the inlet, there is awareness that mining can threaten the environment. Northern Dynasty officials have said the project would be conducted in an environmentally sound manner. Wallace reiterated that in a conversation Tuesday.

"We have long ago said at Hunter Dickinson that responsible mining development is our mantra," he said. "If we can't develop a mine in a way that addresses socioeconomic and environmental concerns, then we are not interested."

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