Teck Cominco and NovaGold suspend work on Galore Creek

[GRG55]

This comes on the same day that Silver Standard announces a doubling of the capex for their large silver mine in Argentina...

Teck Cominco and NovaGold suspend work on Galore Creek

Cost overruns
Peter Koven, Financial Post Published: Monday, November 26, 2007
Teck Cominco Ltd. and NovaGold Resources Inc. are halting construction of the Galore Creek Project due to soaring costs and the high value of the Canadian dollar, a shocking and disappointing move after years of work on the British Columbia mega-project.

The announcement comes after an independent review of the Galore Creek feasibility study indicated "substantially higher capital costs" and a longer construction schedule.

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 in an interview.

The news was devastating for NovaGold, as Galore Creek is one of the company's two flagship projects. NovaGold shares plunged 42% to $11.58 in morning trading Monday.

But both Mr. 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 over the next five years to try and come up with an alternative development strategy for Galore Creek over the next five years.

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

Mr. Lindsay also pointed out that the project works at today's metal prices, and would still be economic "at prices significantly lower than today." But the prudent move was still to stop construction, he added.
NovaGold has spent a little over $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 writedowns related to the project, and said they are working to determine the amounts and timing.

Link:
http://www.financialpost.com/trading...html?id=124638

[jk]

Re: Teck Cominco and NovaGold suspend work on Galore Creek

my first reaction was to wonder whether these companies were now worth buying, on the theory that the deposit would become increasingly attractive as time goes by. then i wondered how much operating costs might go up over the same period. conclusion: i'm still a lot more comfortable with metal than with miners. and furthermore, the more uneconomic the mines, the more future supply taken off-line, the more attractive the metals.

[GRG55]

Re: Teck Cominco and NovaGold suspend work on Galore Creek

my first reaction was to wonder whether these companies were now worth buying, on the theory that the deposit would become increasingly attractive as time goes by. then i wondered how much operating costs might go up over the same period. conclusion: i'm still a lot more comfortable with metal than with miners. and furthermore, the more uneconomic the mines, the more future supply taken off-line, the more attractive the metals.

Interestingly, Novagold was the subject of a hostile takeover offer from Barrick this past summer. Novagold and Barrick own a large project (Donlin Cr) in Alaska 50/50 so this was a consolidation move by Barrick. Here's a link to the GATA site with their opinion at the time. I wonder what Novagold shareholders are thinking today. I believe that before it ended Barrick was up around an all cash US $16 offer (Novagold is listed on the Amex).

http://www.gata.org/node/4302

[touchring]

Re: Teck Cominco and NovaGold suspend work on Galore Creek

So Jim Rogers was right about avoiding miners - he said, you never know if the management will screwup the show.