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Mining Economies

by Jun 29, 2020Magazine, Mining

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A few jobs go a long way

The mining industry plays an important role in the economy of more than seventy communities throughout the state. Whether the mines produce zinc, lead, coal, gravel, silver, or gold, the direct and indirect financial impacts on the surrounding area are significant, according to a McDowell Group report commissioned by the Alaska Mining Association.

“The most important impacts are related first to the jobs and the wages that a mine creates,” McDowell Group Senior Vice President Jim Calvin says.

“Mines are fairly labor intensive; they will typically employ several hundred workers. And mines are also often among the largest employers in terms of headcount and total payroll over the course of a year.”

Alaska mines created $740 million in direct and indirect payroll in 2019, according to the report.

“Mining jobs are one of the more lucrative jobs in the state. It is basically second to only oil and gas,” says Sara Teel, a state economist focused on labor and workforce development. “They pay very well. There’s just not as many of them. The mining industry doesn’t have the same amount of jobs when compared to oil and gas or bigger industries like retail or tourism.”

Coming in at $112,800, the estimated average annual wage for those working in the mining industry is more than twice the state average of all other sectors of the economy.

“They are paid very well, and there’s a number of reasons for it. I mean you will definitely have to be in a situation where you can work the kind of schedule that you would have to work in the industry: the two weeks on/two weeks off, something like that with rotations. Plus, you’re going to be going to remote locations. And there’s some danger inherent with mining, of course,” Teel says.

Jobs Snapshot

The entire industry provided only 4,600 direct jobs in 2019, according to the McDowell report. The majority of these jobs were associated with metal mining.

Though the employment numbers for the metal mining industry remain low in comparison to employment overall, there has been a steady increase in the number of jobs created.

“From 2008 to 2017, metal mining employment grew 36 percent and its wages rose 44 percent. This was in stark contrast to Alaska’s total employment, which grew just 2 percent while total wages rose 5 percent,” according to Teel’s report Metal Mining in Alaska: Small, high-value industry with a long history here is growing.

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Despite this significant increase, metal mining only comprised 0.8 percent of Alaska jobs by 2017. Employment in gold mining saw the most growth (45 percent) from 2008 to 2017 with the biggest bump coming between 2009 and 2012, according to Teel’s report. Other metal mining jobs rose more steadily at a rate of 24 percent.

Alaska ranked fifth out of ninety-one global regions for mineral potential in 2017 and tenth for overall investment attractiveness by mining and exploration companies, according to the Fraser Institute’s Annual Survey of Mining Companies.

“The Department of Labor and Workforce Development projects metal mining employment will grow 18.4 percent from 2016 to 2026,” Teel’s report states.

Teel says that 62 percent of metal mining jobs were filled by Alaskans. However, for specialized support jobs such as drilling and boring of machine tool headers, only 39 percent of employees are residents.

The majority of Alaskans working in the metal mining industry are men, with women accounting for 12 percent of the workforce, Teel reports. More than half (57 percent) of these Alaskans are 40 years old or younger.

“These demographics are common in the mining industry overall due to remote job sites, extreme conditions, and atypical work schedules,” according to Teel’s report.

Indirect (and Positive) Effects

Another significant impact the mining industry has on a community and region are indirect and induced effects from the mine and its employees purchasing goods and services within the community. These are known as multiplier effects, Calvin explains.

“McDowell Group conducts numerous studies where we take a deep dive into understanding multiplier effects,” Calvin says. “We gauge those effects by looking at how much money mining companies spend in the region in support of their operations, which could include buying electricity, fuel, professional services, or any number of other goods and services that create jobs via the multiplier effect. The same impact occurs when mining company employees spend their wages in the community. These additional jobs and income are termed the multiplier effect.”

The mining industry has a multiplier effect of about two in Alaska, which means for every job at a mine, there’s another job in the regional economy that exists because of the mining operation.

“For example, Greens Creek employs 400 workers; however, the total employment footprint of the operation will be 800 workers or more—and that holds true statewide,” Calvin says. “A multiplier of two is relatively high because of the high wages paid in the industry, because of high property tax payments, and also the extensive purchases of goods and services in the region or elsewhere in Alaska.”

A typical multiplier effect in Alaska is about 1.5, Calvin says. The mining industry multiplier is second to only the oil and gas industry.

“The oil and gas industry has the largest multipliers in Alaska because of substantial subcontracting with professional services companies, construction companies, and transportation providers. And they also pay very high wages and generate a tremendous amount of taxes and royalties for state and local government,” Calvin says.

Despite a long timeline for mines to begin production, the multiplier effect begins to affect a community as soon as the mining company starts spending money in the region.

“For example, the Donlin [Gold] project has been in the exploration, pre-development, and permitting phases for many years and through that process created jobs for local people and spent money in Alaska on a wide range of services and materials,” Calvin says. “As a result, significant multiplier effects are generated. When the mine is developed and goes into production, the total economic footprint will be much, much greater than it is during the pre-development phase. But nevertheless, there are still important multiplier effects right from day one, right when they first start spending money in Alaska.”

Beyond the direct employment and wages generated, as well as the multiplier effects within these communities, mines provide significant, stable revenue for local governments. About $37 million was paid to local governments in 2019.

“One very important additional aspect is the tax payments that mines make. Mines are capital intensive operations, which means they have substantial investment in facilities and equipment. And, as a result, they can be among the largest property taxpayers in the community,” Calvin explains. “For example, Greens Creek and Kensington are the top two property taxpayers in Juneau. In Fairbanks, Fort Knox mine has been the second-largest contributor of property taxes in the borough.”

Fort Knox paid $11 million in property tax in 2019 to the Fairbanks North Star Borough, according to the McDowell Group report. The City and Borough of Juneau received $1.8 million in property tax from Greens Creek and $1.3 million from Kensington.

“Though there’s not a property tax payment, the Red Dog mine is the single largest contributor by far to the Northwest Arctic Borough,” Calvin says.

The Red Dog mine paid nearly $15 million in lieu of taxes in addition to $8 million to the Village Improvement Fund.

Alaska mines also generate significant revenue for the state. McDowell Group estimates that the state earned $112 million in royalties, rents, fees, taxes, and other government-related revenues. The majority of this revenue (some $57 million) was generated through mining license tax, rents, and royalties.

Doyon Invests

Mining operations also provide significant sources of income for Alaska Native corporations. In 2019, the industry paid about $242 million to Alaska Native corporations. Some of this money came directly through lease agreements, which can have provisions included to directly help shareholders.

One lease provision in Doyon resource extraction contracts, including those for mining operations, is focused on supporting Doyon shareholder and descendant education.

“A lot of those dollars end up at the Doyon Foundation,” Doyon President and CEO Aaron Schutt says.

“One of the things that Doyon has embraced since its inception is education,” Schutt says, noting that Doyon has a natural resource scholarship for shareholders and descendants who want to get a degree in geology, biology, or another science related to natural resources.

Starting last year, Doyon used money from lease agreements with mineral exploration company Tectonic Metals to fund educational programs that supported the first Alaska Native Science and Engineering Program Middle School Academy for the Interior hosted at UAA.

“They’ve been doing Middle School Academies for years,’’ Schutt says. “But this is the first one we helped fund and got students from Alaska Gateway School District, which is where Tectonic’s activity is in the eastern Interior. And then we got a few kids out of Galena, as well.”

Tectonic Metals President and CEO Tony Reda says that their lease agreement with Doyon includes a provision for a $25,000 annual payment to be made toward education. Tectonic Metals acquired two projects, Seventymile and Northway, from Doyon in the summer of 2018.

“As part of that acquisition, we structured a lease agreement that covers all aspects of exploration, development, production, and royalties,” Reda says. “Also, as part of that acquisition, we met with some of the locals in and around the projects and discussed job opportunities. Instead of me going to them and saying, ‘This is what I can provide to you,’ we also ask them what’s important to them.”

In April Doyon strengthened its ties with Tectonic Metals, paying $1.5 million to acquire about 22 percent ownership in Tectonic Metals on a partially diluted basis. It makes Doyon the largest single shareholder of Tectonic Metals. Schutt says of the partnership, “The team at Tectonic has a proven track record in finding resources and working closely with First Nations in the North… We are pleased to deepen the partnership with Tectonic and look forward to working with them for many years to come.”

Schutt says that when mining and exploration projects are near a community such as Northway, there are more opportunities for locals in the form of labor support activities, helping in the camp, or assisting drilling operations.

“If it’s remote, then those people can come from anywhere,” Schutt says. “Now we’re going to encourage, whenever it’s on Doyon land, that an explorer hires Doyon shareholders and people from the Interior, but it can be harder to facilitate that when it’s distant from a community than when it’s in a community or near a community.”

Schutt says that these exploratory programs—a mine has yet to start operations on Doyon land for various reasons—do not have a significant impact on local communities.

“These programs are generally summer only. Even in the summer, a drill program might last a month or six weeks or eight weeks. Unless there’s a discovery and there’s a large sustained drilling program, it can be fairly minor in the big scheme,” Schutt says. “But we understand that it’s really important for local people to have that local job in the community that doesn’t otherwise exist. So, for individuals that can be hugely important, but when you kind of look at it from the 50,000-foot level, you go: wow, that’s a fairly small economic impact.”

Because Tectonic’s programs are smaller operations, they are creating about two to five job opportunities locally during the summer, Reda says.

“Then, long term, obviously as we see the scope of the program get larger, and longer, it obviously unfolds into more,” Reda says.

As a project clears exploration, development, and permitting hurdles, more and more money trickles into local communities. However, Schutt says there’s no guarantee the work that’s available for job seekers during one summer will be there next.

Even if a resource is proven and economical, it can take decades to come online.

“One important point about the mining industry that’s unique is that the period of time required from discovery of a potential resource to mining operations can be ten or twenty years or even longer,” Calvin says. “And further, mining development requires very significant investment. It can cost $300 million to well over $1 billion dollars to bring a mine online. So, a good stable business environment is required to attract investors.”

Even so, long before a mine ever comes online, it provides thousands of Alaskans with some of the highest paying jobs in the state, making mining companies significant contributors to the economic health of the state and the communities in which they operate.

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