While Northgate Minerals' (AMEX:NXG) rejected Kemess mine expansion was a disappointment, it had none of the sting of the recent decision by Canadian partners Teck Cominco (NYSE:TCK) and NovaGold (AMEX:NG) to cancel their huge Galore Creek project. The effective abandonment of Kemess North led to a $32 million writedown, whereas NovaGold has poured hundreds of millions into Galore Creek. The firm hasn't yet specified the amount it expects to write down, but its share price gives some indication. NovaGold shares were cut in half from Friday's close to Monday's close.
So was this another case of stepping on First Peoples' toes? Not at all. Teck and NovaGold had done their community-relations footwork. Necessary permits for the copper-gold-silver project were in hand back in June. Galore Creek's failure to launch appears purely economic.
Some of the cost elements are naturally beyond anyone's control. We saw the leaping Loonie deck Teck's tepid outlook. That currency strength, coupled with extremely tight markets for labor and supplies, still can't possibly account for the fact that the anticipated cost of Galore Creek has more than doubled to roughly $5 billion. The best explanation seems to be that an early assessment of the cost to build a mine-waste storage dam was wildly optimistic. That piece of the puzzle has popped to nearly half the entire project cost.
While NovaGold, being the smaller company, took the financial shellacking, Teck Cominco certainly gets a black eye for this error in execution. I've praised the company in the past for its ability to build and run mines, but I'm losing interest in the major miner, and I doubt that I'm alone. Now that its spat with Barrick Gold (NYSE:ABX) regarding the Donlin Creek project is settled, I'm actually more interested in NovaGold today. Given the trading volume on Tuesday, I know I'm not alone in that sentiment.
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