Insight: Arctic has great riches, but greater challenges

Wed Aug 31, 2011 1:35pm EDT
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By David Ljunggren and Euan Rocha

IQALUIT, Nunavut/BAKER LAKE, Nunavut (Reuters) - At the rim of the Arctic Circle in Canada, gold mining firm Agnico-Eagle is learning how tough it is to operate in a remote region with temptingly large, but frustratingly inaccessible, reserves of oil, gas and minerals.

Commentators rarely mention nightmarish logistics, polar bears and steel-snapping cold when they confidently predict that as the Arctic warms up, melting sea ice and shorter winters will open up the expanse to exploration.

But the rosy words obscure the reality of working in an icy wasteland that stretches across Russia, Scandinavia, Alaska and Canada. And rather than making life easier, the warming of the Arctic and the thawing of its permafrost could make operating here even more complicated.

A closer look at the far northern Canadian territory of Nunavut, one of the most promising areas for exploration, reveals challenges so huge that the Arctic may well turn out to be a niche market where big firms with a serious tolerance for risk and adversity develop a handful of major deposits.

For all the talk of a bonanza there is just one mine working in Nunavut today - Agnico-Eagle's Meadowbank operation, which has cost a total of $1.5 billion so far. The gold mine, literally in the middle of nowhere, is surrounded by dikes that keep a series of shallow lakes at bay. Temperatures plunge to minus 50 degrees centigrade (minus 58 Fahrenheit) in winter, bringing with it the risk of almost instant frostbite and mechanical failures.

Most workers have to be flown in, as long as the often foul weather cooperates. The only land access is a gravel road the company built to Baker Lake, a small town 70 miles to the south. The road - which was supposed to cost $275,000 a km to build - came in at $550,000 per km.

It's no surprise that Agnico-Eagle chief executive Sean Boyd concedes such projects are not for the faint of heart.

"With assets up here in the north, you need big tonnage operations, you can't have a small footprint given the cost structure," he said.   Continued...

<p>Hydraulic excavators scoop the broken rock into 100- or 150-tonne haul trucks at Agnico-Eagle's Meadowbank Mine in Nunavut, Canada, photographed on June 28, 2011. REUTERS/Euan Rocha</p>