The Pebble mineral project is said to be one of the biggest unexploited copper-gold-molybdenum prospects in the world. It also happens to be located in the delicate natural ecosystem of South Western Alaska. To complicate matters it is an area of extraordinary natural beauty. And needless to say there are a fair few people who are none too happy about the arrival of a bunch of miners.
Of course, the miners see a glittering opportunity to deliver huge value to shareholders! And if you believe what it says on paper, this could be significant.
Anglo Maerican estimates that for every 3.9bn tonnes grading of 0.99% copper equivalent, there could be 45m oz of gold. And that is before mentioning the copper and molybdenum there.
But... there are the environmental issues!
Anglo bags a big catch
Before going any further, a bit of history.
Back in 1988, Pebble West was discovered by Cominco, now Teck Cominco. After exploring the property until 1997, defining a significant resource, Cominco sold out to Northern Dynasty ("Northern").
That was in 2001, when the industry was experiencing a bit of a downturn. Northern’s timing was good!
By 2005, Northern controlled 100 % of the Pebble project and had already carried out several exploration programmes. By 2004 it had upgraded 75% of its Pebble West resources to the "measured and indicated" categories.
Things got better in 2005. Northern struck a "world class" deposit at what is now known as Pebble East.
Drilling, environmental and socio-economic studies got underway and are still ongoing. By 2007, Northern had stirred the interest of some of the world’s biggest miners.
First Rio Tinto took a 19.8% stake in the project. Then in July last year Anglo decided it was time to get in on the act.
Behind closed doors, Northern was convinced that a partnership with a mining heavyweight would be the fastest way to production. Not surprising, given that Anglo ranks Pebble’s resources as "among the world’s most important accumulations of copper, gold and molybdenum."
Anglo has made a significant commitment to the project, which is known as the Pebble Partnership. But to keep hold of its 50% interest, it must make staged cash investments to the tune of $US1.425 bn over the next few years.
2008 — Pebble partners take the plunge
This year it would appear that the Pebble Partnership board is taking the plunge. It will spend US$140m this year to really stir things up.
First of all, US$61.6m will be spent on drilling to upgrade some of the inferred mineral resource at Pebble East to so-called "indicated" category. That implies greater economic certainty, and means the pre-feasibility study can be completed. Drilling will also test the full extent of the deposit.
Then US$30.2m will go to an engineering programme to back up the final pre-feasibility study. And, of course, there is money allocated for an environmental study programme (US$24.9m). Funds have also been put aside for a community engagement and public affairs project (US$14.8m).
The plan is to complete the pre-feasibility study by December 2008, the feasibility study by 2011 and to start production by 2015. That will bring the total invested in Pebble to US$220m since 2002. US$87m of that will have gone to environmental and socio economic studies.
Dirty money for dirty gold?
Obviously it is still early days. Comprehensive studies are underway to collect the data necessary to complete pre-feasibility and feasibility studies. And, as yet, management hasn’t even applied for an environmental impact statement (EIS).
There are two key hurdles to overcome. First, these are nothing more than inferred resources. Pebble partners give a clear warning to investors that there is no guarantee that these are even minable.
Second, environmental campaigners are vehemently opposed to the project. They say the mine risks the Bristol Bay watershed, home to the world’s biggest commercial wild salmon fishery and the planet’s greatest fly fishing wilderness. That is already worth between $20m and $100m to the area. So who needs gold?
Big name jewellery companies, like Tiffany’s are believed to have said they aren’t interested in gold from here. Bob Gillam, an uber-rich Alaskan who owns a holiday home on Bristol Bay, has been a major supporter of the anti-Pebble lobby.
But there has been an interesting turn in events recently, as revealed by the "Truth about Pebble", which brings us good news about the project. It so happens that Mr Gilliam manages a fund (McKinley Capital Management) which has made huge investments in Anglo American.
According to an SEC filing in the first quarter of this year, McKinley held over 138,000 shares in Anglo stock, worth about US$4 m. And, according to some reports, McKinley's investment for state retirement funds includes 119,315 Anglo shares, worth $7.7 m.
So, does Mr Gillam have his finger in both pies? In the age of internet information and misinformation it is anybody’s guess. One thing is certain: Mr Gillam can always buy a holiday home elsewhere, says Erin. Of course we want the mines to take care of the environment, and keep disruptions to a minimum. But if all goes well the mine will bring jobs and prosperity to this region.
And it might just prove a worthy investment too.
Keep mining,
Erin and Isabel
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