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Gold Mine Teaches Lessons on Cleanup

Posted on: Saturday, 5 November 2005, 03:00 CST

By Paula Dobbyn, Anchorage Daily News, Alaska

Nov. 4--The troubled life of Illinois Creek gold mine finally expired last month after years of high drama, including a bankruptcy, several failed efforts to restart production and a bond too small to cover cleanup costs.

Reclamation -- the industry term for cleanup and shutdown -- officially wrapped up at the heap-leach mine in October, said Harry Noah, of American Reclamation Group, on Thursday. Noah is a former Alaska commissioner of natural resources.

The Illinois Creek experience taught state mining officials some hard lessons about the risks involved with mining projects and how to avoid leaving taxpayers with the tab of mine closure, said Bob Loeffler, former state director of mining, land and water. In Illinois Creek's case, no public funds were needed for reclamation. But for a long time, it wasn't clear that would happen.

"I believe I'll live two years less because of this mine," said Loeffler, who announced his resignation from the Alaska Department of Natural Resources last week.

Loeffler, who permitted the mine, sweated through the whole Illinois Creek fiasco.

"I woke up a lot of nights, worrying," he said Thursday over a beer in the bar of the Sheraton Anchorage Hotel where the Alaska Miners Association is holding its annual conference this week. Earlier, he gave a speech about the lessons learned at Illinois Creek.

The mine, located about 50 miles southwest of Galena, started producing gold in 1997. It was supposed to yield 340,000 ounces of gold over six to eight years. But within months of getting its permits in 1996, the operator, USMX of Alaska Inc., ran into construction delays and other troubles. USMX, a subsidiary of Dakota Mining Corp. of Denver, declared Chapter 11 bankruptcy in 1998.

The mining company had posted a reclamation bond of $1.6 million, intended to cover the costs of closing the mine and putting the land back in order should the firm become insolvent. The amount should have been twice that, Loeffler said. In 1999, the state told the operators to increase the bond to $2.6 million. It never happened, he said.

The bankruptcy reorganization failed and attempts by a bank to take over and operate Illinois Creek also dead-ended.

The state was left to run the mine for a time while it sought a new operator that would produce gold or reclaim the site.

It was a bleak time for Loeffler. Not only was the mine lacking sufficient bonding and the operator insolvent, liens on the equipment and 60 million gallons of cyanide-laden waste water had to be dealt with.

DNR officials asked the attorney general's office to pass an emergency regulation to allow the agency to lease Illinois Creek to new operators. The Department of Law balked, saying there was no emergency, Loeffler said.

John Shively, resources commissioner at the time, went nuts and harangued the attorney general's office until they declared an emergency, Loeffler recalled.

But the new company that took over in 1999, Viceroy Resources, abandoned the mine the next year.

Noah and business partner Ken Pohle stepped in and struck an agreement with DNR to run the mine. The two took a substantial risk to do so, contributing private capital and mortgaging houses and other assets, Loeffler said. The key for the state was that Noah and Pohle's American Reclamation Group would reap no profit until the state's reclamation requirements were fulfilled.

The firm used hydrogen peroxide to neutralize the cyanide-laden water, capped the processing reservoir and revegetated the area. The company also contributed $200,000 to a trust fund to monitor Illinois Creek in the future. The fund totals $838,000 and is more than adequate, Loeffler said.

Although what happened at Illinois Creek is not uncommon in the Western United States, it was Alaska's first experience dealing with a large mine bankruptcy. As a result, DNR learned that the size of reclamation bonds matters and that government must act quickly when bankruptcies occur, Loeffler said.

"It's too bad that they had to go through that, but they made it work," said Steve Borell, executive director of the Alaska Miners Association.

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USMX, VOY,

Source: Anchorage Daily News

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