Mining industry may top $2 billion in exploration and development: increased metal prices help Alaska mine operations and mineral prospectors.

• Author: Liles, Patricia

Mine managers at the Red Dog zinc, lead and silver mine .in Northwestern Alaska are implementing a $25 million-plus capital budget this year, the second year in a row that strong metal prices have helped to fund substantial improvement spending at the mine.

Projects this year include mill upgrades, a new lime-handling system for water treatment needs and the relocation of a cyclopac, which uses centrifugal force to remove fluid from ore concentrate, changing its density.

"It's not related to processing more tons, but to improve our ability to deal with the tonnage that we do treat," said John Knapp, general manager of Alaska's largest mine operation, a Prudhoe Bay-sized economic powerhouse within the state's mining industry.

Exploration work also will continue this summer at Red Dog to evaluate a possible shale gas resource that could replace some of the 18 million gallons of diesel shipped to the remote industrial site each summer. Drilling on the gas project started last summer, after Teck Cominco, operator of Red Dog, acquired permits and approved the initial $3.9 million spending program.

Gas exploration drilling had been considered but not funded in previous years, partially due to tight spending budgets at the base metals mine. Early in this decade, Red Dog posted significant operating losses, as much as $20.7 million in 2002, when zinc prices averaged about 35 cents per pound.

But as metal prices began climbing in the last year or so, that trend has turned around, putting Red Dog well into the black. The mine produced a $268 million profit in 2005, a record for the open-pit mine that partners with NANA Corp. and the Alaska Industrial Development and Export Authority.

That 2005 profit was based on an average zinc price of 63 cents per pound, less than half of recent market prices of $1.50 per pound. In the first quarter of 2006, Red Dog posted a $118.9 million profit, compared to $34.9 million the first quarter of 2005, setting up the potential for the mine to set another operating profits record this year.

MINING INDUSTRY IN ALASKA BOOMS IN 2005 AND IN 2006

As the economic ball turns favorably for Red Dog, so does Alaska's mining industry. Last year, the state set a record of $1.8 billion for the amount of exploration and development spending and the value of mineral production taking place in Alaska.

"Alaska's mineral industry had a very strong year in 2005, propelled by strong metal prices and renewed interest in Alaska's outstanding mineral endowment," said David Szumigala, state geologist, and Rich Hughes, minerals development specialist, in their annual preliminary mining industry review released in January.

The $1.8 billion value achieved in 2005 is a considerable increase over the $1.6 billion calculated in 2004, which was a record-setting year itself.

Since 1996, Alaska's mineral industry has typically hovered around the billion dollar mark in the total spending and production value. Values in 2004 jumped in all three categories: exploration spending, development spending and the value of production.

That growing trend continued in 2005, with exploration spending increasing 40 percent to $100.9 million, development spending increasing 60 percent to $347 million and total production values increasing by nearly 19 million to $1.357 billion.

Szumigala and Hughes predict that Alaska's mining industry will remain bolstered by strong metal prices and increased exploration spending. "Alaska has world-class mineral deposits and Alaska's major mines are showcase examples of modern mines," the two wrote. "Alaska remains highly unexplored compared to other regions in the world, but recent exploration successes hint at...