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Illinois Creek Mine

Illinois Creek mine was an open-pit gold mine. Mining operations ceased in 1998 and has been deemed "reclaimed" by the State.

Illinois Creek OverviewOverview

Certified as fully reclaimed and closed by the State of Alaska in 2005, Illinois Creek was an open pit, cyanide heap leach gold mine. It gained notoriety as the first modern hardrock mine in the state to go bankrupt - with an insufficient reclamation bond to properly and safely close the mine and conduct environmental monitoring.

Through a "mine-to-reclaim" approach, the State of Alaska, as the underlying landholder, was able to reclaim the property and put enough funds in trust for long-term environmental monitoring of the site. Starting in 2000, the State contracted with American Reclamation Group (whose principals were a former Department of Natural Resources Commissioner and a former general manager of the Ft. Knox mine) to continue mine operations while using the proceeds from gold/silver production to fund concurrent and post-closure reclamation. When the State declared the site fully closed and reclaimed in November, 2005, ARG had placed $638,000 in an interest-bearing trust fund maintained by the Department of Revenue, and was committed for an additional $200,000. These monies will be used for 30 years of environmental monitoring at the site.

Location

The Illinois Creek Mine Project is in the Kaiyuh Mountains, in west-central Alaska. Located entirely on state lands, the mine is 23 miles east of the Yukon River, and approximately 57 miles from Galena (click here for map). It is accessible only by air.

Past Operation

A low grade gold/silver deposit, the Illinois Creek Mine was originally leased and operated by USMX, Alaska, a wholly owned subsidiary of USMX/Dakota Mining. At the time of permitting, estimated mine life was six years, assuming seasonal operation only (March through November). It was mined as a conventional open pit, run-of-mine, heap-leaching operation.

The leach pad facility, as set forth in the Plan of Operations, consists of a double-lined system with leak detection and recovery capability. The pad was designed to hold 5 million tons of run-of-mine ore, and was built as a partial valley fill.

The mine began gold production early in 1997, and ran into trouble shortly thereafter. Within a few months of operation, the mine shut down when USMX could not pay equipment contractors. After resuming operations briefly late in 1997, it closed again when USMX declared bankruptcy in May 1998. In 1999, the State called in the reclamation bond of approximately $1.6 million, and formally took control of the leases and the mine.

Although it took time and negotiating with other creditors, among them Rothschild, the bank that financed the mine, the State eventually obtained the funds, but realized an additional $1 million would be needed to fully reclaim the site and prevent environmental degradation. Had the "mine-to-reclaim" plan not raised sufficient funds, Alaskans would have paid the bill for reclamation and closure - since a heap leach operation presents too great a threat to water quality and the environment to be left unreclaimed.

The Mine's Rocky Road to Failure

Illinois Creek's troubled history began with the State of Alaska's fast tracking of its original operating permits. From the company's first discussion with state officials to the day its operating permits were issued, the process took only one year and five months. "It began innocently enough with fast and efficient permitting" said Bob Loeffler, former director of the Division of Mining, Land and Water. However, that fast and efficient process overlooked a number of factors that indicated this project was likely doomed to financial failure. USMX was an under-capitalized company trying to mine an economically marginal deposit in a remote location - a combination that should have set off warning bells with state regulators, but apparently did not.

The mine got off to a rocky start even in construction. Poor project planning and implementation resulted in delayed start-up of the mine - which began the tailspin the mine never pulled out of. Just two months after construction began, the State issued USMX several stop work orders over concerns about construction of the leach pad liner. Chief among these was that in an attempt to complete construction before winter shut down, USMX was hastily completing liner installation - ignoring weather conditions that could impact its integrity, bypassing required State inspections and glossing over permit stipulations.

USMX's mine plan called for ore to be already on the heap by the end of the summer of 1996, but by October, the leach facility was barely completed. Weather prohibited the company from executing required testing of the facility - and the project was mothballed until spring.

Finally, early in 1997 gold and silver production began at the mine - but by the end of the summer, USMX, unable to pay its equipment contractor, shut down the operation. Although the mine again operated briefly under a court-appointed receiver, it finally shut down for good in early 1998 - embroiled in legal suits filed by unpaid contractors, the State of Alaska, and Rothschild, the bank that financed the project. USMX declared bankruptcy and the State of Alaska eventually regained control of the property.

Legislation Rather Than Innovation to Protect Alaskans

Bankruptcy and an abandoned and unreclaimed mine site are the common result of the convergence of three factors: an under-capitalized or inexperienced mining company, a marginally economic deposit, and permitting agencies that do not require adequate financial assurance for mine operations, reclamation and post-reclamation monitoring. Although Bob Loeffler, the former director of the Alaska Division of Mining, Land and Water characterized the successful closure of Illinois Creek as an example of private industry and public agencies working together to generate an innovative solution, it was more luck than anything that allowed the State to finesse a clean-up without using public dollars. If Illinois Creek had operated longer, been a larger mine or had a more toxic deposit, such as Red Dog, it is doubtful the State could have found a solution that would not have used public funds. Although the State legislature has since taken steps to address inadequate bonding, more still needs to be done to fully protect Alaskans from having to pay for the environmental mess and degradation left behind by mining companies.

 

last modified Mar 26, 2010 05:14 PM

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