Development has halted at the Galore Creek copper-gold-silver project in northwest British Columbia. The move surprised the industry, but partners NOVAGOLD RESOURCES and TECK COMINCO found the new capital cost estimate of $5.0 billion too big to swallow. Company executives put the blame for skyrocketing expenses directly on increased labour costs and a longer timeline to complete the tailings containment and the required water diversion work. "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," according to a news release dated Nov. 26.
According to the feasibility report released by HATCH in October 2006, the total project costs were to be $2.2 billion. After Teck Cominco and NovaGold created their joint venture in April 2007, Teck Cominco hired AMEC to go over the earlier report; hence the new, higher estimate.
Teck Cominco president and CEO Don Lindsay admitted that he is "disappointed" by the decision to halt development of Galore Creek. "We spent six months on due diligence and thought we knew what the risks were," he said. Given the chance to do things over with 20/20 hindsight, he would spend more time on detailed engineering of the civil works involved in the tailings containment and water diversion aspect. He would rely less on the original feasibility report, and would involve independent third parties at an earlier date.
"The lessons learned here," said Lindsay, "will only strengthen the Teck Cominco teams at other projects."
Now the partners are faced with managing an orderly retreat from Galore Creek. NovaGold has $400 million invested in the project, and Teck Cominco's commitment to the end of this year is $265 million. Plus the cost of putting the project on care and maintenance is estimated to be another $100 million, and there is yet another $72 million to be spent on further engineering. Despite these heavy monetary commitments, no long-lead-time equipment had yet been ordered for the project.
Galore Creek played a large part in NovaGold's plans for the future. The company is now pinning its hopes on the Donlin Creek gold mine in Alaska. Its joint venture partner there is BARRICK GOLD. That project is headed for the feasibility stage and is not affected by the Galore Creek shutdown.
Teck Cominco has several other growth projects on the horizon - the Quebrada Blanca and Andacollo copper projects in Chile, the Petaquilla copper-gold-molybdenum project in Panama, and the Fort Hills oil sands development in Alberta.
The Galore Creek deposit is still one of the largest undeveloped copper-gold deposits in the world. Contained gold is estimated to be upwards of 7.4 million oz, and the copper content probably tops 8.5 billion lb. The measured and indicated resource is 748.9 million tonnes grading 0.52% Cu, 0.30 g/t Au and 4.9 g/t Ag. The metals aren't going anywhere. They will still be in the ground if/when construction resumes sometime in the future.
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