NovaGold tries to reassure on Galore, Donlin costs
Wed Nov 28, 3:14 PM
ca.news.finance.yahoo.com
By Jonathan Spicer and Susan Taylor
TORONTO/OTTAWA (Reuters) - NovaGold Resources scrambled to assure investors on Wednesday that costs had not spiraled out of control at its two key mining projects, after investors shaved 50 percent from its stock earlier this week on a similar concerns.
NovaGold stock plunged on Monday after it and Teck Cominco Ltd pulled the plug on their Galore Creek joint venture because cost estimates had mushroomed to C$5 billion -- about C$2.8 billion more than originally thought.
Instead, they agreed to seek alternative development plans for Galore Creek, considered one of the largest undeveloped copper and gold projects in the world. Production at the remote mine in northwestern British Columbia had been slated to start by 2012.
"We clearly had a setback, but there's huge value here," Rick Van Nieuwenhuyse, NovaGold's chief executive, said on a webcast. "It's certainly in both Teck Cominco's and our opinion that it's worth spending a lot more money to develop it into a mine."
The companies said on Monday they do not plan to sell the Galore asset, and blamed soaring materials and construction costs, as well as an underestimate of construction time, for the big cost overrun.
Van Nieuwenhuyse also defended NovaGold's stake in the big Donlin Creek gold project, which it owns 50-50 with world No. 1 gold producer Barrick Gold .
On Tuesday, Alexander Davidson, Barrick's executive vice-president of exploration, reiterated that his firm estimates the cost of developing Donlin Creek is as much as C$4 billion
That's nearly C$2 billion more in capital costs than NovaGold's latest estimate.
"We're not comparing apples and apples here," Van Nieuwenhuyse said. "I do not think it's a case at all of Galore's doubled and Donlin's doubled."
NovaGold estimates it will cost C$2.1 billion to develop Donlin Creek, which includes about C$600 million to build a power line for the project. Barrick's more recent estimate, on the other hand, includes more costly plans for on-site diesel and wind co-generation.
Earlier this month, Barrick and NovaGold agreed to split the Donlin project following a failed bid by Barrick last summer to take over its smaller rival. The companies say they'll deliver a new, joint cost estimate next year.
Van Nieuwenhuyse also said that, despite the halt to Galore Creek, he wanted building to continue on a road and tunnel that are key to the project. Construction could continue at a slower pace until there were new options for the very costly and time-consuming construction of a tailings dam, he said.
"Unfortunately, it was not our decision to make alone, and Teck was not in support of that alternative," he said, adding: "Teck's the one spending the money, so usually the guy who spends the money makes the decisions."
NovaGold's shares were off 12 Canadian cents, or 1.2 percent, at C$9.96 in afternoon trading on the Toronto Stock Exchange.
"We think we're in reasonably decent shape financially," Van Nieuwenhuyse said. "Obviously, I would have much preferred the $20 share price that we had on Friday to the $10 share price that we had on Monday."
(Reporting by Jonathan Spicer and Susan Taylor; Editing by Rob Wilson) |
