In a landmark trade agreement, China’s largest gold producer will purchase approximately half of the gold produced at Kensington Gold Mine.
Kensington Gold Mine, owned by Coeur D’Alene Mines Corp. with its subsidiary Coeur Alaska Inc., is the first U.S. precious metal mine to be involved in a trade with a company owned by the People’s Republic of China, according to Coeur.
Coeur announced the contract on June 22. The agreement is the beginning of a long-term relationship with China National Gold Group Corp., an enterprise that produces 20 percent of China’s gold and shares 30 percent of China’s gold resources.
Kensington Gold Mine, located 45 miles northwest of Juneau, is expected to produce an average of 125,000 ounces of gold per year for just over 12 years of production.
“Gold production began on June 24,” Tony Ebersole said, Director of Corporate Communications at Coeur d’Alene Mines Corp. “We’re looking at about 50,000 ounces of production this year.”
Coeur does not own any refineries making it necessary for them to sell their gold to companies that do.
“It’s kind of a standard agreement, selling gold to a third party that will refine it,” Ebersole said. “They purchase it and the income comes to the company from the production.”
The Kensington Gold Mine cost over $400 million. The total cost included capital, taxes and employee wages and benefits.
“The operating cost per ounce is estimated to be, over the life of the mine, about $490 per ounce,” Ebersole said. “So of all the $490, there would be a profit.”
The current value of gold sits at about $1,200 per ounce, the highest it has been in 20 years, adjusting for inflation. Coeur will potentially make around $700 per ounce of gold produced at the current value.
“There’s basically a division of opinion over gold prices. Some people think the price range will hit over 2000,” Paul Johnson, UAA associate professor of economics, said. “Then there is a totally contradictory school of thought that it’s mostly just a bubble that will eventually fall.”
Gold prices fluctuate constantly, and it is possible that by the end of Kensington’s life, prices could be radically different than today.
“The price (of gold) is quite volatile and could easily fall by a large percentage over the next 10 years, to average much lower,” Oliver Goldsmith said, UAA economics professor with expertise in international economics.
Currently, there is no established purchase agreement for the other 50 percent of gold production.
“(The remaining gold) will likely have an agreement with someone else, if not China Gold, to purchase the gold,” Ebersole said. “I don’t think there’s anything eminent. We would make that public when it happens.”
China has also recently established a trade agreement with Teck Resources Ltd., based in Vancouver, which operates the Red Dog Mine near Kotzebue. In July of 2009, China Investment Corp. purchased 17.5 percent interest in Teck, which is one of the largest producers of zinc concentrate, according to Teck.
“China currently has a deliberate national strategy of securing sources of resources: iron, aluminum, oil,” Johnson said. “It’s kind of encouraging that they are thinking of Alaska for a long-term relationship. It’s helpful for us when economic situations go bad because it means that we have a guaranteed long-term buyer in contract.”
The Kensington trade agreement is not only profitable for Coeur, but also for Alaskans, particularly in the southeast. Construction of Kensington produced 300 jobs and operation of the mine will allow for 200 jobs.
“These are long-term jobs that will be there as long as the mine operates,” Ebersole said. “The jobs generate salaries, people buy houses in Juneau and they spend their money in the economy in Juneau.”
This helps to expand Juneau’s government heavy job force. Coeur’s involvement exceeds creating jobs, as they also have agreements and relationships with several Alaskan organizations, including Kake Tribal Corp., Goldbelt Inc., Klukwan Inc. and Berner’s Bay Consortium.
“The startup of production at Kensington represents the culmination of a community-wide effort by the Juneau community, which has supported the project from the beginning and who will participate in the economic benefits Kensington will provide,” Dennis E. Wheeler, Chairman, President and Chief Executive Officer of Coeur, said on the Coeur D’Alene Mines Corp.’s website.
Coeur has a history of environmentally friendly, award winning mining. The company, which is one of the world’s leading silver producers, has collected over 20 national and international awards for their dedication to safety and environmental awareness.
Kensington Gold Mine, which includes nearby Jualin properties, received the Hardrock Mineral Community Outreach and Economic Security Award in 2006 from the Bureau of Land Management.
After 900 environmental studies, public feedback and agency reviews, Coeur established an effective means of recovering the gold, dealing with the left over material and maintaining an aesthetically satisfactory landscape.
While cyanide is a common chemical used to retrieve gold in mining, it raised concerns with local residents, according to Coeur Alaska.
“Instead, the gold will be recovered using a flotation process. This involves use of degradable flocculants, detergents and air to produce bubbles, which the gold mineral attaches to and is then collected,” according to the Coeur Alaska website.
Left over material from mining, known as tailings, was also a concern of environmental, federal and local agencies. Seven options of disposal were evaluated and the tailings will be used to create an embankment below Lower Slate Lake, which they will also stock with native fish. This option is the least invasive and environmentally detrimental process of all alternatives.
The mine itself is underground with processing facilities above ground limiting the aesthetical impact. The mine and all of its facilities and structures will be removed from the land upon conclusion of the gold mining, according to Coeur Alaska.
The land used for Kensington Gold Mine in Berner’s Bay will be restored, as well as Lower Slate Lake.