Business in Vancouver March 18-24, 2008; issue 960
Water drives new revenue stream
Hydroelectric power generation becoming an increasingly important profit centre for the province’s mining industry
Krisendra Bisetty
BC mining companies are tapping into a new precious resource: water.
Power from hydroelectric facilities, particularly the significant revenue it generates and the price stability it provides, is taking on a bigger role in a cyclical industry that’s more accustomed to wildly fluctuating commodity prices.
Diversified miner Teck Cominco Ltd. powers its massive Trail metallurgical operation with it, selling a third of the electricity generated into the Canadian and U.S. grid; Aluminium giant Rio Tinto Alcan recently used power sales from its Kemano hydro facility in Kitimat as a bargaining tool to justify a $2 billion smelter upgrade.
Now NovaGold Resources Inc., which suffered a rout on capital markets late last November after pulling the plug on a massive copper-gold project in northwestern B.C., wants to take things further: develop a portfolio of hydroelectric power projects.
“We think the alternative energy space is a very good business, and there’s a lot of synergies with our mining projects,” said Rick Van Nieuwenhuyse, NovaGold’s president and CEO. “We see [us] being able to apply our expertise and our knowledge in that space.”
The Vancouver-based company added three “promising” hydroelectric projects to its stable through its 2006 acquisition of Coast Mountain Power in a deal valued at $44.4 million. It’s hoping to expand its portfolio of renewable energy projects through wholly owned NovaGreenPower subsidiary, which Nieuwenhuyse said is being readied for a roll-out.
“We see that as a very important long-term business unit, whether or not it stays within NovaGold or whether it ends up, I think more likely, becoming an independent company.”
A feasibility study on the subsidiary’s largest asset, the Forrest Kerr run-of-river hydroelectric project on the Iskut River in northwestern B.C., is being updated by power and energy consultants Hatch Energy in Vancouver. The intention, said Nieuwenhuyse, is to increase power output by 70%, from its original design of 115 megawatts to approximately 195 megawatts. That would make it one of B.C.’s biggest run-of-river hydro-electric projects.
Located close to NovaGold’s remote Galore Creek mine site, the Forest Kerr project has already received all major approvals and permits needed for construction of a hydroelectric plant as well as a power transmission line to connect to the grid. NovaGold is drafting amended plans for Galore after that project was shelved last November because of upwardly spiralling costs.
The self-funded 138-kilovolt line was also meant as a backup to bring power to the mine, but Nieuwenhuyse said that following a province-industry plan to build a high-capacity 287-kilovolt northwest transmission line from Terrace to Bob Quinn Lake to power several proposed mining projects, the economics of expanding Forest Kerr have improved.
“With that dynamic, we have several other projects in the vicinity of Forest Kerr that we think it would fit nicely into a package.”
NovaGold expects to benefit from pricing stability through long-term power purchase agreements it’s trying to secure with BC Hydro.
Its other proposed projects have a combined capacity of approximately 100 megawatts, but NovaGold is also exploring more run-of-river opportunities in B.C. and Alaska, where it’s developing a gold mine.
Power sales have long been a profitable venture for Vancouver-based Teck Cominco, which owns the Waneta dam and hydroelectric power plant located just south of Trail on the Canada-U.S. border.
The four turbines at the 54-year-old facility, which powers all of the metallurgical production at Teck’s massive Trail smelting and refining complex, were upgraded last year, bumping up the installed capacity of 450 megawatts to 475 megawatts.
The generators put out approximately 2,735 gigawatt hours of energy a year on average. That’s enough, said Teck, to light a 100-watt bulb continuously in more than three million homes or replace 1,500,000 barrels of crude oil per year or supply a city of 250,000 with power.
More significantly, it’s a cash cow.
About a third of the power generated is sold into the grid, both in Canada and the U.S., the latter through Teck’s 15-kilometre transmission line from Waneta to the U.S. power distribution system.
The facility generated operating profit of $37 million for Teck in 2004, but this rocketed to $69 million in 2005, helped by price surges after Hurricane Katrina hammered the U.S.
Last year, power sales generated $48 million in profit for Teck. The smelter generated $297 million.
“It’s been quite important to us to have the power revenues in years when metals aren’t doing well,” said Richard Deane, energy manager at Teck subsidiary Teck Cominco Metals Ltd.
“Historically in Trail, the revenues from power have been absolutely key in ensuring the long-term viability of this operation.” •
kbisetty@telus.net
