Galore Creek mining project shut down for now

One of the larger projects in the northwest of late is in a suspended state today, after the Galore Creek copper-gold mine project was suspended by Nova Gold and Teck Resources due to ballooning costs.

Originally budgeted to come on line for two million dollars, recent estimates to put the project into operation were tagged at five million dollars, a rather risky prospect it seems for the mining company.

Another potential casualty of yesterday's announcement could be the plans to increase the power delivery capability to the area which was on track for a major expansion in the next few years.

The news was greeted with regret in a number of northwest communities who felt that it was one of the few “sure things” on the way for the local economy.

The Tuesday Vancouver Sun had further details on Monday’s announcement.


Galore Creek project on hold - for now
Backers say it could be revived if economic conditions change
By Scott Simpson
Vancouver Sun
Monday, November 26, 2007

VANCOUVER - Work on a landmark British Columbia mining project came to a screeching halt on Monday after its Vancouver-based proponents decided a projected $3 billion cost overrun made the massive Galore Creek copper-gold mine development in northwest B.C. too expensive to proceed.

The chief executives of Galore Creek proponents NovaGold and Teck Cominco expressed deep regret about the decision, which will affect hundreds of workers, members of the Tahltan First Nation, and also threatens a $400-million plan to connect the northwest to BC Hydro's electricity grid for the first time in history.

Only six months ago, NovaGold and senior Canadian miner Teck Cominco announced a partnership to build Galore Creek for $2 billion - based on calculations in a 2006 feasibility study of the project.

On Monday, the president-CEOs of the respective companies cited a number of factors including a stronger Canadian dollar, "rapidly escalating" construction and material costs, and unanticipated higher costs for a mine tailings dam and waterway modifications for pushing the cost of the project from $2 billion to $5 billion.

The value of NovaGold shares plummeted more than 50 per cent on the Toronto Stock Exchange while Teck, down five per cent, was relatively unscathed.

Teck had warned in late October that Galore Creek would go significantly over budget but did not specify by how much.

The companies said the project is going on what they described as "care and maintenance" while they review their engineering options for the dam - and perhaps wait for both the Canadian dollar and B.C.'s thriving construction industry to cool down.

Galore Creek is considered the flagship for a new generation of B.C. mines, a property boasting a rich, world class resource in a remote wilderness area linked to the rest of the province by a spectacular tunnel under a glacier-covered mountain.

It was projected to provide 1,000 jobs during a four-year construction phase and 500 full-time mining jobs lasting at least 20 years.

It was also a triumph for relations between first nations and the province's resource industry, with NovaGold and the Tahltan forging a strong and unique relationship in support of development of the mine.

The Tahltan in particular were counting on the mine to provide a transition for their members working at the Eskay Creek gold-silver mine that will run out of ore next year.

The decision is also a blow to the B.C. mining industry, which has been waiting since 1997 for a major, all-new mine to open in the province.

The industry was also counting on a Nova-Teck contribution of $158 million, announced last month, to jump-start a $400 million transmission infrastructure project in the northwest.
The area has several promising mineral and metal properties,but no legitimate mining opportunities without a link to the electricity grid. Galore Creek was supposed to change that.

"I think this points to a bit of a larger issue in the sense that mining isn't immune to the economic pressures that every industry in this province is facing in terms of upward pressures on cost, the Canadian dollar, labor issues and all the rest of it," said Michael McPhie, president of the Mining Association of British Columbia.

"Galore is a big, complex, remote project that was one of the larger mining projects anywhere in the world. We've been seeing cost overruns and escalations in prices in the oil sands now for several years."

McPhie said it's not surprising that similar inflationary pressures emerged in B.C.
"The difference is that everyone in the industry is surprised that the numbers went up so fast and so high. That I think is a surprise to all of us."

McPhie said he is hopeful that the B.C government will find a way to enable the transmission project to proceed, even without seed money from Galore Creek.

NovaGold president-CEO Rick Van Niewenhuyse said cost increases for the tailings dam and water diversion structures were the biggest factors in the decision.
"We are not happy with the risks we'd face if we went forward with the current plan," Niewenhuyse said in an interview.

"We've jointly come with Teck Cominco to a decision, we think it's the right decision, to suspend construction, do an orderly shutdown, an orderly suspension of the operations and put it on care and maintenance - then direct our engineering teams to reassess the project and to look at alternative ways of constructing the in-valley [dam and water] works."

Asked if it was unusual for a mine feasibility study - typically undertaken by an expert mine engineering firm - to grossly underestimate the true cost of the project, Van Niewenhuyse said other mines have seen similar jumps.

But he didn't anticipate that Galore Creek would be one of them.

"The magnitude of the change certainly came as a surprise to ourselves and to Teck," Van Niewenhuyse said, adding that NovaGold will look for ways to lower the costs of developing the mine.

"This is a very major project for B.C. and for Canada. We want to do it right. We are committed to building the project to the highest environmental standards.

We will continue to work with the Tahltan First Nation in finding a new approach that will make it economically viable."

Teck president-CEO Don Lindsay said the companies believe a cautious approach will be better in the long run.

"Certainly we've seen other instances in the industry where people kept charging ahead and spent a lot of money, then found out later they'd spent it in wrong places or in ways that weren't productive. I think the prudent thing to do, for both NovaGold and ourselves, is to step back and re-engineer, and figure out the right way to develop this," Lindsay said.

He said Teck expects the project will eventually be built.

"You have to put it in context. The worldwide mining industry in the last three or four years has spent $20 billion on exploration and it hasn't really found that much. It hasn't been that successful. Most of the projects you see talked about in Powerpoint presentations are things that were known of before.

"It hasn't really discovered another Galore Creek, so this resource is valuable and we want to hang onto our share of it and I know NovaGold does, too, because we believe it will be developed.

"But at the same time, to the extent that the capital costs have gone up so quickly it means your level of confidence in what the ultimate number is, is reduced and it's more prudent to slow down, step back, and make sure you've got the engineering absolutely right."

Biggest blow to the area since the 1990s, mayor says
Derrick Penner
Vancouver Sun
Tuesday, November 27, 2007

News on Monday that development the multibillion-dollar Galore Creek copper-gold mine in B.C.'s remote northwest is being suspended sent the region reeling.

The Galore Creek mine was the biggest sure-thing, mega-project fuelling economic development from Smithers to the tiny villages of Telegraph Creek and Dease Lake. It promised hundreds of jobs and millions of dollars worth of procurement.

"I think [the Galore Creek mine] was the focal point of a lot of the optimism going on here with real estate and housing and business expansion," said Phil Bandstra, manager of Bandstra Transportation Services Ltd. in Smithers, a major transportation company in the region.

Bandstra said he was shocked to see the news as he had his morning coffee.

"I had no expectation this was coming down the pipe," Bandstra added.

His company had established daily freight transportation service for the mine. Bandstra said they were contemplating the need to expand and add equipment as mine construction proceeded and opportunities to bid on contracts increased That work will no longer exist.

Smithers Mayor James Davidson called the decision to suspend development of Galore Creek the biggest blow to mining in the region since the early 1990s when Tatshenshini-Alsek, the site of a potential mine, became a protected area.

However, Davidson added that he understood the mining firms' decision to suspend work on Galore Creek after cost estimates ballooned to $5 billion from about $2 billion.

"You can't argue with good judgement," Davidson said.

In the meantime, however, there will be lost jobs. Davidson noted that the Galore Creek operation currently has an office employing about 20 people.

Smithers is also a hub for delivering services to northwestern mine sites, so those in transportation, bridge and road building will also be affected.

His biggest concern, though, is that the Galore Creek mine project was a key element in justifying construction of a proposed $400-million power transmission line into the region.
Davidson said the power line is necessary for other potential projects, such as the Red Chris copper-gold mine and run-of-river hydroelectric projects that "without the transmission line, may never come to be."

Davidson now fears that with the huge Galore Creek project on hold, the impetus to build the power line will diminish, "and it may well be, I hope it isn't, but it may well be the most significant casualty."

Curtis Rattray, chairman of the Tahltan Central Council, said that in a region where employment has traditionally been seasonal and jobs ranged from hunting and guiding to working for B.C. Parks, the Galore Creek development offered his communities a significant payroll.

"This [mine] was the most important [project]," Rattray said.

"We had a participation agreement and our people had ratified that participation agreement."
That agreement offered up to 200 jobs in Tahltan communities in the northwest -- home to about 1,500 of the first nation's 5,000 to 6,000 members.

The agreement also called for payments into a Tahltan heritage trust fund, which would have been used to support cultural initiatives in the first nation's communities.

"What happens now is we wait and get more information," Rattray said.

He added that the communities now have to focus on the less certain options of other proposed resource developments in the region.