RE: Results - Infrastructure - The FIRST Casualty...The Galore Creek Project
As I posted just a couple of days ago, the COST of INFRASTRUCTURE is "always the straw that breaks the camel's back in a mining situation."
In a News Release today (Nov. 26/07 See Below+++ for the whole thing),citing "substantially higher capital costs and a longer construction schedule for the project..." AND "...reduced operating margins as a result of the stronger Canadian dollar..." Teck Cominco and NovaGold now see this project as "... uneconomic at current consensus long-term metal prices...."
The companies cite generall global conditions - "...The project has also been affected by the rapidly escalating capital costs affecting major construction projects world-wide..."
Then, following the earth shaking shock comes the BLAH, BLAH BLAH..."Long-term demand for copper and gold is expected to remain strong and the Galore Creek property contains one of the world's largest undeveloped copper and gold resources. British Columbia is a good place to invest and both companies remain committed to...BLAH, BLAH, BLAH..."
BUT the BOTTOM LINE today is
NovaGold (T:NG)Close $9.25 DOWN $10.71
Teck Cominco Cl. A (T:TCK.A) Close $44.20 DOWN $1.50
Teck Cominco Cl. B (T:TCK.B) Close $35.67 DOWN $1.62
Copper Canyon (V:CPY) which has a property right next to the Galore Creek property and in which NovaGold gave Notice of an Earn-In just the other day on Nov. 19/07 also had a disasterous day in the markets - V:CPY Close $0.365 DOWN $0.835.
Now, who knows. On the flip side there is opportunity for somebody. Perhaps, these companies are negotiating in public and are really looking for some form of government support.
Nonetheless, the shock of this decision will reverberate throughout the developing mining industry in Canada and certainly in B.C.
Now, in the conntext of previous posts on this topic, Leeward is sitting relatively pretty with a viable option down the road with a permitted operating mine just down the road. Sure beats some operation however sweet the grades and intercepts in the middle of nowhere or at least not close enough to somewhere.
LB
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Press Release Source: Teck Cominco Limited, NovaGold Resources Inc.
Teck Cominco and NovaGold Suspend Construction at Galore Creek
Monday November 26, 8:10 am ET
VANCOUVER, BRITISH COLUMBIA--(Marketwire - Nov. 26, 2007) - NovaGold Resources Inc. (AMEX:NG, TSX:NG) and Teck Cominco Limited (TSX:TCK.A - News, TCK.B - News; NYSE:TCK - News) today announced they will suspend construction activities at the Galore Creek copper-gold-silver project in northwestern British Columbia. A recent review and completion of the first season of construction indicate substantially higher capital costs and a longer construction schedule for the project. This, combined with reduced operating margins as a result of the stronger Canadian dollar, would make the project, as now conceived and permitted, uneconomic at current consensus long-term metal prices. NovaGold and Teck Cominco continue to view the property as a substantial resource and will initiate a comprehensive review to evaluate alternative development strategies. 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.
In April 2007, NovaGold retained AMEC Americas Limited ("AMEC"), an independent engineering firm, to review the October 2006 Galore Creek Feasibility Study and commence project engineering. The review covered the entire project with a focus on construction of the mine facilities and tailings and water management structures.
By mid-October 2007, AMEC's preliminary work indicated that capital costs would be significantly higher than originally estimated. As a result, NovaGold and Teck Cominco commenced a project strategy review, involving seven engineering teams, to assess the AMEC work. Estimated costs have continued to increase during this review, and NovaGold and Teck Cominco now have sufficient information to indicate that the capital cost of the project could approach as much as $5 billion. The engineering review is ongoing.
Although there have been changes in scope from the original feasibility study, the largest portion of the capital cost increase is related to the complex sequencing of activities necessary to build the tailings dam and water management structures, and the resulting extension of the construction schedule by 18 to 24 months. The project has also been affected by the rapidly escalating capital costs affecting major construction projects world-wide.
In light of these developments, NovaGold and Teck Cominco have agreed to suspend construction and amend the terms of Teck Cominco's earn-in obligations in connection with the project. Under the amended arrangements Teck Cominco will invest an additional $72 million in the partnership to be used principally to reassess the project and evaluate alternative development strategies over the next 5 years. Teck Cominco's sole funding of other project costs incurred after August 1, 2007 will now total $263 million. NovaGold and Teck Cominco will share the next $100 million of project costs 33% and 67% respectively, and will share costs proportionately thereafter.
"NovaGold has worked for years to advance this project toward production," said Rick Van Nieuwenhuyse, President and CEO of NovaGold. "We reached this decision after considerable review and we share the disappointment of our employees, the Tahltan Nation, all stakeholders and local communities. We will work closely with Teck Cominco to unlock the potential of this world-class resource. NovaGold will continue to add value for shareholders by advancing the other projects in our portfolio, particularly the Donlin Creek project in Alaska."
Teck Cominco's President and CEO, Don Lindsay, said, "Very few copper-gold deposits of this quality have been discovered over the last few years even though the industry has invested billions of dollars in exploration world-wide. Galore Creek is a substantial resource and we will continue to work to determine how and when it can best be developed."
There are over 400 contractors and employees currently working on the Galore Creek project. In order to suspend activities, the partnership will review its personnel and supplier requirements over the weeks ahead. During this period and into 2008, the partnership will work with the Tahltan Nation and government regulators to develop a strategy to put the project on care and maintenance.
The Galore Creek project is owned by a 50/50 partnership between NovaGold and Teck Cominco with all aspects of the project overseen by Galore Creek Mining Corporation, a jointly controlled operating company.
"The Galore Creek team has operated this project to the highest standards," said Doug Brown, President of Galore Creek Mining Corporation. "Exceptional progress was made this year, and the team worked together to deliver on construction and partnership expectations. The partnership is committed to supporting its employees, contractors, suppliers and partners through this difficult period."
Long-term demand for copper and gold is expected to remain strong and the Galore Creek property contains one of the world's largest undeveloped copper and gold resources. British Columbia is a good place to invest and both companies remain committed to working in the province. NovaGold and Teck Cominco will continue to evaluate the project with the goal of identifying a viable development strategy that brings value to shareholders, the Tahltan Nation and local communities.
NovaGold and Teck Cominco expect there will be write downs on this project and are working to determine the amount and timing.