Mine project sidelined

As we outlined in this spot on Tuesday, the Galore Creek mining project has been suspended owing to spiralling costs and a high Canadian dollar, a move that will sideline a fair number of northwest residents who were preparing for the full development of the project.

The Daily News provided details on the shutdown plans in the Wednesday paper.

Rising costs bury mine project
By Leanne Ritchie
The Daily News
Wednesday, November 28, 2007
Pages one and three

Higher than estimated costs and the soaring Canadian dollar were both factors in the decision to halt a massive mining project in Northwestern B.C.

NovaGold Resources and Teck Cominco announced their decision to halt construction on Monday because of an anticipated $3 billion cost overrun.

More than 400 people are currently working on the Galore Creek project north of Smithers.
The announcement comes after an independent review of the Galore Creek feasibility study indicated "substantially higher capital costs" and a longer construction schedule.

It is a huge loss for business in the Northwest, including transportation companies such as Hawkair and Bandstra that were running services to the construction site.

It also puts into question the Northwest Transmission line, a new power line that was going to be partly funded by the mining company, and that would have opened the region up to other projects, such as hydro electric power plants and other mines.

In October of last year, a feasibility study conducted by engineering firm Hatch Ltd. determined a capital cost for Galore Creek of about $2.23-billion.

Teck and NovaGold now believe the capital cost of the project could be as much as $5 billion.
Rick Van Nieuwenhuyse, chief executive of NovaGold, said one factor is rising labour and material costs that are growing throughout the industry. The other is that the cost of building the tailings dam and water diversion structures at Galore Creek was grossly underestimated.
"Clearly, there was an underestimation of the amount of labour man-hours necessary to complete that work," he said.

But both Van Nieuwenhuyse and Teck CEO Don Lindsay maintained that they are fully committed to this project and expect it to go forward in the future. Teck plans to invest $72 million during the next five years to try and come up with an alternative development strategy for Galore Creek in the next five years.

"I believe this project is going to be built and we're just going to have to figure out the right way to do it. I'm a big believer in hanging onto resources, particularly in this next 20-year period," Lindsay said.

The Galore Creek partnership will conduct an orderly suspension of construction activities and will work with employees, the Tahltan Nation, local communities and other stakeholders to minimize the impacts of this decision.

NovaGold has spent a little more than $400 million on Galore Creek so far, and Teck will have invested $265 million by the end of the year. Both companies expect to announce write-downs related to the project, and said they are working to determine the amounts and timing.

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. 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."

This is the second huge blow to mining in the Northwest in recent months. The first was the decision by the joint provincial/federal environmental review panel not to allow Northgate Minerals to proceed with the Kemess mine expansion.

-With files from CanWest News Service