Framing Critical Resource Development Issues: The Arctic in the Global Context

Paul Hueper

Director of Energy Programs Bureau of Energy Resources

U.S. Department of State Lulea, Sweden

October 13, 2016

Department of State’s Bureau of Energy Resources

The Bureau of Energy Resources (ENR) was established in September 2011 to elevate the Department’s global profile on energy issues.

• Energy Diplomacy – Bilateral & multilateral engagement and cooperation.

• Energy Transformation – Support policy development and investment frameworks for alternative and renewable energy technologies.

• Energy Governance & Access – Counter energy poverty and economic development brought about by a lack of access and poor resource management.

ENR manages two separate and broad foreign assistance programs:

• Energy Governance & Capacity Initiative (EGCI) • Power Sector Program (PSP)

ENR’s programs supports a wide range of technical assistance underpinning the Bureau’s energy diplomacy in priority countries and regions.

• Builds resource management capacity; helps to ensure sound sector governance benefitting national economic development, promotes global energy security, alleviates energy poverty, and supports climate change mitigation goals.

EGCI & PSP: Global Governance & Capacity Building

Key Issues in Extractives Sector Management

• Technical: Understanding the resource and maximizing recovery with optimized development planning.

• Financial: Responsible management of sector income, including tax/audit, budget planning, revenue forecasting, monetary policy and long-term wealth administration for national benefit.

• Legal & Fiscal: Embedding international best practices into laws and fiscal policies to achieve a “win-win” balance that protects host government interests while still incentivizing investment.

• Environmental & Social: Protecting people and the environment from sector impacts with best practices in regulations, laws, policies, oversight and inspections throughout a project’s lifetime.

Key Challenges to Long-Term Resource Development

• Adoption of national policies and regulations best suited to ensure proper oversight of sector development.

• Ensuring that extractives resource development is tailored to maximize benefit to the nation.

• Infrastructure planning for long-term sustainability.

• Environmental risk mitigation inspections and enforcement.

• Protecting communities and livelihoods near project areas.

• Safeguarding flora and fauna in ecologically sensitive areas.

• Planning for and responding to industrial accidents if they occur.

• How best to attract responsible commercial partners to help ensure the sustainability of multi-decade long projects.

• Series of technical-level workshops across the Arctic in 2015-2016.

• Highlights key challenges to consider while in pursuit of sustainable resource development in fragile environments, such as in the Arctic.

• Issue focus related to long-term extractives (e.g., oil, gas and mining) sector planning, oversight, and management.

• Brings together governments, the private sector, communities, civil society, and academia to allow for an informed discussion.

• Ties in global experience in order to frame critical resource development issues faced by Arctic governments and communities.

• Final report on issues and outcomes in coordination with host government partners.

U.S. Department of State’s Arctic Workshop Series

U.S. Department of State’s Arctic Workshop Series

Reykjavik (August 2015): Long-Term Oil and Gas Sector Management

• Purpose: Creating frameworks to support long-term hydrocarbon sector management

and oversight as well as establishing appropriate regulatory, contractual, and fiscal

regimes to support sustainable development.

Nuuk (October 2015): Regulations, Oversight & Revenue Management

• Purpose: Implementing regulations; examining the cost-benefit derived from fiscal

regime terms; managing revenue once a project has started; promoting economic

development and diversity at the national and local level; and aligning project-specific

corporate social responsibility programs with national economic planning and social

development priorities.

Helsinki (April 2016): Sustainable Cross-Border Resource Management

• Purpose: Examining global case studies, options and best practices for offshore

boundary delimitation and long-term cross-border oil and gas sector resource

management, including boundary delimitation and agreements, joint management of

shared resources, mitigating offshore trans-boundary disputes, and cross-border field

unitization.

Purpose: Examination of the government’s role in ensuring oversight and best practices for mineral sector development as well as related environmental and social risk mitigation. Issues covered will include:

• Developing global commodity market trends;

• Identifying government and private sector strategies to support mineral development in the market;

• Supporting environmental and social risk mitigation best practices related to mining in fragile environments;

• Adapting to new global challenges in the mining sector, including climate change; and

• Increasing the use of renewable energy to support the mining sector.

Lulea, Sweden: Sustainable Mining Sector Development

Greenland Case Study

Historical Mining in Greenland

Ivitttuut (Cryolite, South Greenland) 1854-1987

Qullisaat (Coal, Disko Island) 1924-1972

Maarmorilik – “Black Angel” (Zinc-lead, West Greenland)

1973-1990

Mestervig (Zinc-lead, East Greenland) 1956-1962

Mineral Sector Overview & Objectives

• Current 2014-2018 strategy is being updated.

• Taxation model with 30% corporate tax and royalty: 2.5% (metals/minerals), 5% (REE/U) and 5.5% plus 15% of profits in excess of 40% (gemstones).

• Focus on social and environmental sustainability.

• Regulatory framework to support uranium licensing.

• Five-year goal: 3-5 mining projects in operation & 1,500 employed.

• Long-term goal: 5-10 mines in continuous operation & 300+ exploration licenses.

80+ International Companies in Surveying & Exploration Phases

Minerals Projects Moving into Exploitation

Fiskenaesset Ruby Project (LNS Greenland)

• More than 30 ruby occurrences have been found in the Fiskenaesset region.

• Two prospecting licenses consisting of 8 blocks covering 823 square kilometers. Exploitation license for one block.

• True North Gems bankruptcy in September 2016; now operated by Norway-based LNS.

• Summer exploration programs began in 2004. Production startup expected by January 2017.

• Estimated mine life: 2015-2024 • Employees: 68

White Mountain Anorthosite Project (Hudson Resources)

• Permitted for 50 years (30+20 years); possible 100 year project lifetime.

• Kaolin replacement for E-glass fiberglass feedstock; kaolin and nepheline syenite replacement as paints/polymer filler; bauxite replacement for alumina.

• 10 year purchase agreement with major fiberglass producer.

• Planned $30M cost with 200,000 ton/year production . Exports in 2H2017.

• Competitors: Lapinlahti (Finland), Gudvangen (Norway) & Shawmere (Canada).

Citronen Zinc Project (Ironbark)

• Feasibility studies indicate it would be one of the world’s largest zinc mines. • Production costs would be in the lowest quartile of producers worldwide. • Capital Cost: US$429.3M, including contingency • Mine Life: 14 years • Open-pit fresh sulfide potential with very low strip ratios to supplement higher

grade underground mined mineralization. • Ironbark is working with China Nonferrous under a MOU to deliver an EPC fixed

price contract and financing for the project (up to 90 percent).

Citronen Fjord Seasonal Base Camp

Kvanefjeld (GME) – Uranium & REE

• Pursued by Greenland Mining & Energy; Shenghe acquired 12.5% stake in September 2016. • US$1.4B investment required. • Concerns by local residents about possible environmental issues. • Danish government national security role because of uranium. • Greenland government desires on-site processing.

Kvanefjeld Uranium & REE Resources (GME Estimates)

Kvanefjeld Infrastructure Development Plan (GME study)

Kvanefjeld – October 9, 2016

Kvanefjeld – Sealed Entrance to the Adit

View to Mount Ilimmaasaq (left) and Nakkaalaaq Mountains

View Towards Narsaq (8 kms) and Narsaq (1,400 residents)

Narsaq

Existing Challenges to the Extractives Sector in Greenland

• Low commodity prices impact investment in exploration.

• Fiscal competitiveness required against established producers.

• Lack of infrastructure to access project areas and transport product.

• Difficult operating climate with seasonal variations impacting exploration activities and proposed project timelines and costs.

• Operations in sensitive areas with potentially negative social and environmental impacts.

• Lack of access to cheap, reliable and sustainable energy options.

• Ensuring social sustainability and revenue expectations.

• Lack of proven successful model for the sector.

Day 1

• Overview of Global Mining Sector and Trends

• Government Perspective and Strategy for Sustainable Development

• Private Sector Perspective and Strategy for Project Planning

• Public/Private Approach to Mitigating Impacts on Communities and Supporting Local Economic Development

Day 2

• Adapting to New Global Challenges and Climate Change

• Looking at Technology and Policies to Support Renewable Energy Integration for Mining Projects and Communities

• Case-Studies of Renewable Energy Integration for Mining Projects and Processes

Best Practices for Mining and Sustainable Development in the Arctic

Thank you!