Fuel increases impact mining: industry looks to strong prices to help weather higher costs.

• Author: Stomierowski, Peg
• Position: MINING

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Rising fuel and other operating costs have cut into the profitability of Alaska mining, but world demand and strong prices for metals have helped mining companies absorb the higher fuel costs as exploration and development push through uncertainty over long-term prospects.

"Steel prices are up, the prices of all we use to go out and mine are up, so the margins haven't changed that much since back when gold was $300 to $400 an ounce," said Doug Nicholson, Donlin Creek Mine manager. The mine is an advanced-stage, gold-mining exploration project that employs 125 workers and is located 280 miles west of Anchorage near Aniak. When we spoke in September, gold was more than $780 an ounce, "but the cost of doing business has also risen," he stressed. "Everyone thinks you're making money hand over fist, but it's really pretty difficult.

"Permitting at Donlin Creek is expected to begin next year and to take two to three years. The proposed project would include construction of an open-pit mine with milling facilities for processing about 50,000 tons of ore a day," Nicholson said.

Accessing remote locations to mill and grind rocks and extract concentrates is, after all, an energy-intensive process, observed Steve Borell, executive director of the Alaska Mining Association--and nowhere are these sites more remote than in the Last Frontier. Location, transportation needs and the cost of diesel fuel for power generation are significant cost components in a mine's overall operating costs.

"High fuel prices squeeze everyone," Nicholson said, "but the smaller operators don't have the margins ... so are more greatly impacted."

GAS PRICES

As consumer food prices rose across the country last spring, the average price for regular unleaded gasoline in Alaska rose above $4 a gallon, making it the most expensive gas in the nation, and diesel was a good 40 cents a gallon more expensive than regular gas.

At Usibelli, a family owned coal mine founded in 1943 in the Alaska Range near Healy, Bill Brophy, vice president of customer relations, said operators were experiencing the kind of general squeeze so familiar to U.S. households facing rising prices. It's not any one factor so much as a multiplicity of related elements, he said.

State, federal and Native regional land areas open to mining in recent years have amounted to 191 million acres, or 2.7 times the entire area of Nevada, according to the State Office of Economic Development. Yet while...