Miners halt work on B.C. project

Teck Comino and NovaGold suspend work on B.C. mega-project at Galore Creek

Reuters

Vancouver Sun: Monday, November 26, 2007

TORONTO - Teck Cominco Ltd and NovaGold Resources pulled the plug on their Galore Creek joint venture on Monday, saying that soaring costs had made the big copper-gold-silver project uneconomical.

NovaGold shares plunged more than 40 percent and Teck's edged lower after the companies said costs could spiral as high as $5 billion. That, coupled with reduced operating margins due to the strong Canadian dollar, prompted the decision to suspend construction at the 50-50 venture in northwestern British Columbia, they said.

The new capital cost estimate is about C$2.8 billion more than originally thought.

"There's no question we're disappointed," Don Lindsay, Teck's chief executive, said on a conference call. "There's no question that when you add C$2 billion or more to the capital cost, from our point of view the NPV (net present value) turned negative."

The companies said they expected writedowns related to the project, but were still working out the amount. Lindsay said Teck expected the writedowns in the current fourth quarter.

Rick Van Nieuwenhuyse, NovaGold's chief executive, said on the call that the lion's share of the cost increases were related to "overall industry inflationary pressures on wages and materials," and because the tailings dam and water diversion structures "were clearly underestimated in terms of the time and labor necessary."

NovaGold's stock slumped $8.47, or 42.4 per cent, to $11.49 by late morning on the Toronto Stock Exchange. Teck slipped 60 Canadian cents, or 1.6 per cent, to $36.90.

The companies said they still viewed the property as a "substantial resource" and would seek alternative development strategies, which Teck will cover with an extra $72 million investment in the partnership.

Teck and NovaGold said they are not considering selling the property, one of the largest undeveloped copper and gold projects in the world. Production was seen by 2012, and was expected to be at least 430 million pounds of copper, 340,000 ounces of gold and 4 million ounces of silver annually for the first five years of operation.

Teck, the global zinc and copper giant, has now incurred $263 million in project costs. NovaGold has spent more than $400 million.

Novagold and Teck will split the next $100 million in project costs 33 per cent and 67 per cent, respectively, and will share costs proportionately thereafter.

The Canadian dollar has recently appreciated strongly, rising 60 per cent since 2002 and surpassing the U.S. dollar in September. Last month, Teck blamed the hot currency for a hit to its third-quarter profit.

The decision to pull the plug on Galore Creek was based on long term commodity prices, which are seen below where they are today, company officials said on the call.

"It might turn out that the mindset on long-term copper prices might change over the next year or two, but for now we have to make the prudent decision," Lindsay said.

Vancouver-based Teck said it is still committed to investing in British Columbia, but that it has not yet had discussions with the provincial government about tax changes.